US Economy, How Long Will It Thrive... Bank of Korea Says "High Interest Rate Impact Will Appear as Growth Slowdown"

Bank of Korea New York Office Report
"Concerns Over Economic Slowdown Reduced, Growth Momentum Weakened"

Although the U.S. economy is stronger than expected, analysis suggests that growth will slow down in the future due to the prolonged impact of high interest rates.

According to the report "Recent U.S. Economic Conditions and Assessment" recently published by the Bank of Korea's New York office on the 8th, the U.S. economy has raised expectations for a soft landing as consumption remains robust. However, the cumulative effects of monetary tightening are spreading, and growth is expected to slow down going forward.

The report indicates that concerns about an economic slowdown in the U.S. within this year have diminished. Although GDP growth declined in the fourth quarter of last year, consumption remained strong, industrial production slightly expanded, and economic sentiment indicators improved. The Bank of Korea had predicted in its November economic outlook that the U.S. economic slowdown would continue into the first half of this year, but the latest report sees these concerns as reduced.

The employment situation is also favorable. The increase in the number of employed persons has grown, and wage growth has risen again, showing that the labor market is more resilient than expected. Nonfarm payrolls increased mainly in education and healthcare, professional and business services, and wholesale and retail trade. Despite the winter cold wave, employment also rose in construction and leisure, hospitality sectors, expanding the increase compared to the previous month. A Bank of Korea official explained, "Employment momentum remains strong as employment expands across most industries, suggesting that the labor market slowdown will proceed more slowly than expected."

In the housing market, prices are expected to continue rising. This is because potential housing demand remains strong, and the decline in interest rates is not sufficient to lead to an increase in existing home listings. According to the report, despite mortgage rates being lower in December compared to the second half of last year, the shortage of inventory persisted.

Existing home sales in December last year totaled 3.78 million units, marking the lowest level since August 2010 (3.68 million units). The 30-year mortgage rate in the U.S. fell from 7.79% at the end of October last year to 6.61% at the end of December, but this is because existing homeowners have mortgage rates in the 3% range, which is too low. The Bank of Korea analyzed that such a decline in interest rates is unlikely to lead to a meaningful increase in listings.

Regarding inflation, it is predicted to continue easing. Durable goods prices continue to fall, and the rate of increase in service prices is also slowing. Excluding energy and food, which have large fluctuations due to temporary factors, the PCE (Personal Consumption Expenditures) inflation rate in December last year was 2.6% year-on-year, maintaining the same level as the previous month as the rise in non-durable goods prices expanded. However, core PCE inflation (2.9%) has steadily slowed, and expected inflation in January fell for both the short term (1 year, 2.9%) and long term (5 years, 2.8%) compared to the previous month, indicating continued easing, according to the Bank of Korea's analysis.

A Bank of Korea New York office official told Asia Economy in an interview, "Although recent indicators such as consumption have been decent, interest rates remain at a high level, which is expected to act as a constraint on economic activity going forward," adding, "Looking at U.S. GDP, it peaked in the third quarter of last year and declined in the fourth quarter, which can be seen as evidence of slowing growth."

This content was produced with the assistance of AI translation services.