“Economy expected to recover in the second quarter,” assessment
The Bank of Korea stated that the real GDP growth rate for this year might be revised down from the previous estimate of 1.9% to 1.6-1.7%. The central bank reported on the 20th that the economic slowdown is largely attributed to political uncertainty triggered by the martial law declaration last December, which diminished economic sentiment leading to an estimated 0.2 percentage point drop in growth, primarily affecting domestic consumption. However, the Bank of Korea expects that political uncertainties will gradually diminish from the second quarter, with economic sentiment recovering to previous levels in the second half of the year. Additionally, the reduction in the government budget is projected to lower growth by 0.06 percentage points, but this is expected to be offset by government stimulus measures like early budget execution.
The Bank of Korea plans to release a revised economic outlook on February 25th. The upcoming forecast’s accuracy, whether higher or lower than expected in January, will be significantly influenced by the timing of the resolution of domestic political uncertainties, additional government stimulus policies, and the economic policies of the new U.S. administration. The central bank emphasized the importance of preventing the resurgence of political uncertainties, ensuring that economic policies operate consistently and normally, which is crucial for maintaining international confidence in the economy and stabilizing domestic economic stakeholders.