Heungkuk Lowers Korea's 2024 Growth Forecast from 1.0% to 0.8%... Raises Outlook for Next Year

Heungkuk Securities has lowered its economic growth forecast for this year to 0.8%. The company cited persistent obstacles to growth, including weak domestic demand and exports, ongoing uncertainty over US-imposed tariffs such as item-specific tariffs, and a slump in construction investment. However, buoyed by expectations of a recovery in private consumption, Heungkuk Securities slightly raised its growth forecast for next year to 1.7%.

On August 12, Kim Jinseong, a researcher at Heungkuk Securities, published a report titled "Macro Update After the Trade Agreement: Can the Korean Economy Get Any Worse?" In the report, he revised the 2025 GDP growth forecast downward by 0.2 percentage points, from the previous 1.0% to 0.8%. Kim explained that "due to lower-than-expected growth in the first half of the year, we are slightly lowering the growth outlook despite an anticipated rebound in the second half."

This matches the growth forecast for Korea presented by the International Monetary Fund (IMF) in its "World Economic Outlook" last month, which was released before the Korea-US tariff negotiations were concluded. In contrast, major global investment banks such as Goldman Sachs, Barclays, and Bank of America (BoA) have recently raised their forecasts to the 1% range following the trade agreement.

Kim noted, "Although a turning point in the domestic economy is expected, along with changes in government policy direction, obstacles to recovery remain and growth momentum is weak." He added, "Both domestic demand and exports are sluggish, while real purchasing power in the private sector is declining, construction investment is in a slump, and there is weakening competitiveness in exports to the US and in key export industries." Regarding the recently concluded Korea-US trade negotiations, he pointed out, "Future tariffs on Chinese goods and item-specific tariffs will be key issues."

Kim went on to say, "Although growth momentum is weak, a modest recovery is expected after hitting bottom," and analyzed that "policy shifts under the new government could provide a turning point in the domestic economic trend after the second half of the year, not only in terms of economic sentiment but also in real terms." Specifically, he expects that private consumption will be at the center of this gradual recovery, driven by consumption-boosting policies, stabilized prices, and a rebound in consumer sentiment. The 2026 growth forecast, also released on this day, was raised by 0.1 percentage points from 1.6% to 1.7%.

Regarding monetary policy, Kim projected that the current trend of interest rate cuts, which supplements expansionary fiscal policy amid a low-growth environment, will continue through next year. He presented policy rate forecasts of 2.25% at the end of this year and 2.0% at the end of next year. Kim explained, "When considering monetary easing, factors such as the response to a strong won-dollar exchange rate, available monetary policy leeway, and the US Federal Reserve's restrictive stance must be taken into account," and added, "Constraints such as a strong dollar and the Fed's rate hikes are likely to ease gradually, with the possibility of a weaker dollar and the Fed resuming rate cuts." He forecast the dollar-won exchange rate to reach 1,360 won by year-end.

Additionally, Kim noted that the US is in the final stages of its global trade agreements, and assessed that the average effective tariff rate of 18.6% is "higher than expected but lower than feared." Accordingly, he raised the US growth forecasts for this year and next year to 1.8% and 1.7%, respectively, up from the previous 1.5%. For China, as growth in the first half of the year significantly exceeded expectations, the forecast for this year was raised from 4.4% to 4.8%.

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