Uncertain Growth Ahead: Bank of Korea Raises 2025 Forecast, Maintains Caution for 2026 Amid Ongoing US Tariff Concerns

Strategic Insights -

The Bank of Korea (BOK) slightly raised its 2025 growth forecast to 0.9 percent, citing a recovery in consumption and solid exports, despite concerns over the construction sector and household debt levels. The central bank kept its benchmark rate unchanged at 2.5 percent, reflecting continued instability in the housing market. Notably, the BOK maintained its 2026 forecast of 1.6 percent, attributing this to the possibility of a sharper export slowdown due to the full impact of US tariff impositions. Governor Rhee Chang-yong emphasized that the future growth trajectory remains highly uncertain, with concerns over the possibility of re-ignited US tariff negotiations.

Key Takeaways:

  • The BOK raised its 2025 growth forecast to 0.9 percent, with consumption recovery and solid exports driving the increase.
  • The construction sector remains a significant drag on the overall outlook, with a 0.3 percentage point downward impact on growth expectations.
  • The BOK maintained its 2026 forecast of 1.6 percent, citing concerns over a potential sharper export slowdown due to US tariffs.
  • The central bank kept its benchmark rate unchanged at 2.5 percent, reflecting continued instability in the housing market and elevated household debt.
  • Five out of six Monetary Policy Board members expect the rate to fall below 2.5 percent within the next three months.
  • The BOK's easing stance is expected to continue through the first half of next year, with potential rate cuts in October and the third quarter of 2026.
  • Governor Rhee Chang-yong emphasized the importance of stable inflation, with the consumer price index rising by 2.1 percent in July and core inflation holding steady at 2 percent.

Statistics:

  • 2025 growth forecast: 0.9 percent (up 0.1 percentage point from May)
  • 2026 growth forecast: 1.6 percent
  • Benchmark interest rate: 2.5 percent
  • Number of Monetary Policy Board members expecting rate cut: 5 out of 6
  • Potential rate cuts in 2026: October and the third quarter
  • Consumer price index (July): 2.1 percent
  • Core inflation (July): 2 percent

Sources:

  • Bank of Korea Press Release, August 2023
  • Quotations from Governor Rhee Chang-yong in the Bank of Korea Press Release, August 2023
  • Kang Min-joo, Senior Economist at ING, as quoted in the Bank of Korea Press Release, August 2023