[Geumtongwi poll] ② "Low Possibility of US Economic Recession Becoming Reality"

The majority of domestic economic experts view the recent concerns about a U.S. economic recession as having a low likelihood of materializing.

Although recently released U.S. manufacturing and employment indicators showed weak performance, the U.S. real economy indicators are still considered robust. Furthermore, the weakness in manufacturing and employment indicators is not seen as a signal of mass layoffs but rather interpreted as a temporary result influenced by seasonal factors such as hurricanes.

If a U.S. recession does materialize, South Korea’s export demand could shrink, potentially accelerating the Bank of Korea’s base rate cuts; however, the current assessment is that the impact would be limited.

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On the 19th, Asia Economy conducted a survey from the 12th to the 16th targeting 21 economic experts, including economists from domestic and international banks, economic research institutes, and securities firms. The results showed that 18 respondents, or 90% (with one non-response), viewed the possibility of a U.S. recession materializing as low.

Those who answered that the likelihood of a U.S. recession is low cited the continued robustness of U.S. real economy indicators and the stability of the credit market as reasons. Gong Dong-rak, a researcher at Daishin Securities, said, "Despite concerns about a U.S. recession, consumption remains robust, and there is still excess demand for labor in the employment market." Heo Ji-soo, a senior researcher at Woori Financial Management Research Institute, evaluated, "Considering the Federal Reserve’s remaining monetary easing capacity, the reduction in mass layoff pressures due to solid corporate profits, and the soundness and liquidity of healthy banks lowering credit crunch concerns, the possibility of a U.S. recession is low."

There is also an assessment that the recently released unemployment rate indicator does not signal a recession. Lim Jae-gyun, a researcher at KB Securities, explained, "The recent rise in the unemployment rate is not due to increased layoffs but because the number of economically active participants has increased, and they have not been absorbed into the employment market," adding, "It is premature to mention the possibility of a recession." Heo Jeong-in, a researcher at Daol Investment & Securities, said, "The unemployment rate indicator, which raised recession concerns, was influenced by seasonal factors such as hurricanes," and explained, "We expect concerns to be alleviated after confirming the September employment data, which has been reflected in the recent unemployment insurance claims data."

Even though there are no immediate recession signals, some point out the need to prepare for future possibilities. Kang Seung-won, a researcher at NH Investment & Securities, said, "Once the unemployment rate starts to rise, it can continue to increase further, so caution is needed," adding, "Considering the flexibility of the U.S. labor market, the rise in unemployment is a very important barometer. Although there is no evidence of a recession at the moment, attention should be paid to future possibilities."

If a U.S. recession materializes, expectations for the Bank of Korea to cut its base rate could spread further. Ahn Ye-ha, a researcher at Kiwoom Securities, said, "The greater the concerns about a U.S. recession, the more it could lead to a contraction in domestic export demand," adding, "In this case, expectations for the Bank of Korea to cut its base rate could expand." Yoon Yeo-sam, a researcher at Meritz Securities, explained, "If a U.S. recession occurs, domestic demand will weaken, and export conditions will contract, making a recession inevitable," and added, "The base rate may need to be lowered by more than 150 basis points (1bp = 0.01 percentage points) below the neutral rate to the low 1% range."

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Many respondents forecast South Korea’s economic growth rate for this year at 2.4~2.5%. Among the 14 experts who answered this question, six predicted 2.5%. Four others expected 2.4%, two predicted 2.3%, and another two anticipated 2.7%. The Bank of Korea raised its growth forecast by 0.4 percentage points to 2.5% in its economic outlook released in May.

The most common forecast for this year’s consumer price inflation rate was 2.6%. Among the 14 experts who responded, six expected 2.6%, four predicted 2.5%, three expected 2.4%, and one forecasted 2.7%. The Bank of Korea’s inflation forecast in May was 2.6%, unchanged from the February outlook.

The won-dollar exchange rate is expected to remain in the low to mid 1300 won range until the end of this year. All nine experts who responded to this question forecast the won-dollar exchange rate to be in the low to mid 1300s by year-end.

The won-dollar exchange rate next year is also expected to stay at a similar level or decline slightly. Among seven experts who answered, five forecast the won-dollar rate to fall to the mid to high 1200 won range by the end of next year. The remaining two expect it to remain at a similar level to this year, in the mid 1300 won range.

All four experts who responded to the question about the won-yen exchange rate expect it to remain in the 900 to 950 won range per 100 yen until the end of this year. Regarding the yen-dollar exchange rate next year, some experts expect it to fall to the 620 won range, but most anticipate it will stay around the 900 won level.

All six experts who responded to the yen-dollar exchange rate question expect it to remain in the 135 to 145 yen range until the end of this year. They forecast it will stay in the 125 to 140 yen range until the end of next year.

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