By Rahul Trivedi
BENGALURU (Reuters) – The South Korean economy barely grew last quarter as political chaos weighed on consumer spending, according to a Reuters poll of economists who expect the Bank of Korea to cut interest rates next month following a surprise hold last week.
Asia’s fourth-largest economy grappled with uncertainty from President Yoon Suk Yeol’s brief Dec. 3 martial law attempt, weakening economic sentiment and sluggish domestic demand which overshadowed the recovery in exports.
After only growing 0.1% in the July-September quarter, South Korea’s economy likely expanded a seasonally adjusted 0.2% in Q4, according to the median forecast of 24 economists.
On an annual basis, the economy expanded 1.4% last quarter, according to the median forecast of 25 economists polled Jan. 15-20, barely changed from 1.5% in the previous quarter.
“We expect Q4 GDP data to show lackluster growth. High-frequency indicators point to domestic demand weakness, particularly in December as political events hurt consumer and business confidence,” said Krystal Tan, an economist at ANZ.
Exports rose 6.6% in December compared to a year earlier. Semiconductor exports increased 31.5% during the same period.
The Bank of Korea (BOK) unexpectedly held its key rate steady on Jan. 16 to prevent the Korean won – which fell more than 12% last year – from weakening further, as political instability undermined investor confidence. The currency has seen a modest gain since the decision.
Although currency stability took precedence over domestic demand concerns in last week’s meeting, BOK Governor Rhee Chang-yong indicated a rate cut was still on the table.
All 25 economists in a Reuters snap poll taken after the BOK’s January decision expected it to lower borrowing costs by 25 basis points in February and median forecasts showed a total cut of 75 basis points by end-Q3.
“Even if the USD/KRW climbs back, as long as the current political situation does not worsen and it is driven more by the global dollar strength, the BOK is likely to deliver a rate cut in February,” noted Min Joo Kang, senior economist at ING.
“After that, the BOK will keep a close eye on political developments, growth, inflation, and the won to gauge when to cut rates.”
The BOK has lowered its 2025 economic growth projection from 1.9% in November to a range of 1.6% to 1.7%, reinforcing the rate cut view.