The growth rate forecast for Korea, which plummeted to 0% due to the formation of the second supplementary budget for economic stimulus, is likely to be revised upward. Both overseas investment banks (IBs) and domestic institutions are trending towards raising their growth rate forecasts to around 1%. If the U.S. government extends the tariff exemption, the growth rate could increase further.
According to the International Financial Center on the 5th, the average growth rate forecast for Korea's real gross domestic product (GDP) proposed by eight major overseas investment banks at the end of May was 0.835%. Among the eight, four banks (Barclays, Goldman Sachs, Nomura, UBS) forecasted a growth rate in the 1% range, while the remaining four (Bank of America-Merrill Lynch, Citigroup, JP Morgan, HSBC) expected a 0% range.
Compared to the average forecast (0.775%) compiled by the National Treasury Center at the end of April, this is a slight increase. In that survey, six out of eight banks expected a growth rate in the 0% range, except for two (Nomura, UBS). As expectations for economic recovery grew in light of the impeachment of former President Yoon Suk-yeol and the inauguration of the new government, Barclays and Goldman Sachs revised their growth rate upward to 1%.
As the IB's forecasts improve, expectations for economic stimulus have increased with the passage of the supplementary budget. The National Assembly passed the second supplementary budget of 31.8 trillion won on the 4th, of which 12.2 trillion won, or 38.4%, will be allocated as 'livelihood recovery support funds' to stimulate consumption.
The second supplementary budget is expected to slightly raise the growth rate. According to a report published by the National Assembly Budget Office on the 24th of last month, the second supplementary budget is expected to increase this year's real GDP growth rate by 0.14 to 0.32 percentage points. Considering that the Bank of Korea's revised economic outlook presented in May forecasts this year's growth rate for Korea at 0.8%, the growth rate reflecting the supplementary budget's effects could rise to a minimum of 0.94% and a maximum of 1.12%.
Some institutions report that the growth rate could reach 1%. Previously, the National Treasury Center expected that Korea's growth rate for this year would be around 1% at the economic outlook conference held on the 26th of last month. The Federation of Korean Industries' research institute also projected this year's growth rate to be 1% in its first-half report on 'Economic Trends and Outlook' released on the 22nd of last month.
If the U.S. reciprocal tariff exemption expiring this month is extended, the growth rate is expected to increase further. Karoline Leavitt, White House spokesperson, mentioned in a media briefing on the 26th of last month (local time) that "it may be extended." The Korean government is also reportedly seeing a realistic possibility of extending the negotiation deadline.
The U.S. announced on April 2 that it would impose a total reciprocal tariff of 25% on Korea. Of this, 10% is a basic tariff applicable to all countries, and the remaining 15% is a reciprocal tariff applicable to Korea. The basic tariff took effect on April 9, and the reciprocal tariff was suspended until the 8th of this month.
Jo Yong-gu, a researcher at Shinyoung Securities, stated, "Before the second supplementary budget, I expected this year's growth rate to be 0.9%, but now I am seeing it 0.1 to 0.2 percentage points higher." He added, "If the reciprocal tariff is also waived, the growth rate will rise further." Kim Sung-soo, head researcher at Hanwha Investment & Securities, noted, "It is entirely possible to achieve a growth rate of 1.1% just from the supplementary budget effect," but this is conditional on at least 40% of the supplementary budget being executed by the third quarter.