2024-07-28 04:00:19
Our country has received a report card that fell short of market expectations, recording a quarterly negative growth rate for the first time in 1 year and 6 months. Despite brisk exports centered on semiconductors, domestic demand is confirmed to be sluggish, and calls for a cut in the base interest rate are expected to grow louder.
However, the market believes that the Bank of Korea will not cut rates preemptively like the United States, given the rising housing prices in the metropolitan area and the rapid increase in household debt, which have emerged as new obstacles to interest rate cuts, but rather will only present a minority opinion for a rate cut at the September Monetary Policy Committee meeting.
According to the Bank of Korea on the 27th, Korea’s real GDP (gross domestic product) in the first quarter decreased by 0.2% compared to the previous quarter. It is the lowest since the fourth quarter of 2022 (-0.5%) and falls short of market expectations (-0.1 to 0.1%). It increased by 2.3% compared to the previous year.
Quarterly GDP rebounded to 0.4% in the first quarter of 2023 after recording a negative figure in the fourth quarter of 2022. It continued to grow until the fourth quarter of last year (0.5%), and then achieved a surprise growth of 1.3% in the first quarter of this year.
Despite the improvement in exports, the increase in imports and the sluggishness of domestic demand are prominent results. The net export contribution turned from 0.8% points to -0.1% points, and the growth contribution of domestic demand turned negative from 0.5% points to -0.1% points.
The contribution of construction investment changed from 0.5% points to -0.2% points, and facility investment was -0.2% points, the same as the previous quarter. Investment in intellectual property products decreased from 0.1% points to 0.0% points.
The first half of the year recorded 2.8%, falling short of the Bank of Korea’s May forecast (2.9%). Compared to the May forecast, private consumption in the first half rose 1%, falling short of the forecast (1.4%), and facility investment also fell short of the forecast (1.2%) at -2.3%.
As the sluggish domestic demand in the second quarter is confirmed, interest rate pressure is expected to increase. Despite the Bank of Korea’s top priority of price stabilization, the consumer price inflation rate has been slowing down, staying in the 2% range for three months.
Last month, Seong Tae-yoon, the chief of staff of the presidential office, appeared on a broadcast and said, “As the environment changes to one where interest rate cuts are possible, there are areas where monetary policy can be made more flexible.”
In addition, from the ruling party, People Power Party Emergency Response Committee Chairperson Hwang Woo-yea, former Minister of Land, Infrastructure and Transport Won Hee-ryong, and People Power Party lawmakers Song Eon-seok and Yoon Sang-hyun have urged the Bank of Korea to lower the base interest rate due to sluggish domestic demand.
However, the market is evaluating that it will not be easy for the Bank of Korea to cut interest rates in August ahead of the U.S. First of all, the negative growth in the second quarter left room for a rebound in the second half, as it was a base effect of the surprise growth (1.3%) in the first quarter.
The Bank of Korea also expects that private consumption, which accounts for the majority of domestic demand, will show a gradual recovery in the third and fourth quarters. Shin Seung-cheol, director of the Bank of Korea’s Bureau of Statistics, said, “In the second half of the year, high prices and high interest rates that have been restraining domestic demand will ease.”
In addition, he was confident of achieving the annual growth rate of 2.5% announced in May. Recently, the Asian Development Bank (ADB) and the International Monetary Fund (IMF) presented an annual growth rate of 2.5%, while the Organization for Economic Cooperation and Development (OECD) and the government presented an annual growth rate of 2.6%.
The recent soaring housing prices in the metropolitan area are also a factor that makes interest rate cuts hesitant. Seoul apartment prices have been rising for 18 weeks, and household loans from the five major banks increased by more than 5 trillion won in June, showing the largest increase since July 2021 (6 trillion won).
If the government postpones the stress DSR (Debt Service Ratio) and the Bank of Korea cuts interest rates, this could directly push up housing prices and household debt. Consumers’ July housing price outlook has risen to its highest level in 32 months.
The fact that concerns over a rebound in prices have not been alleviated due to recent heavy rains and typhoons is also making it difficult to cut interest rates. Choi Sang-mok, Deputy Prime Minister and Minister of Strategy and Finance, recently predicted a rebound in prices in July due to rising agricultural product prices and gas rates.
Accordingly, the market is placing weight on the possibility that a minority opinion will emerge for a rate cut rather than the Bank of Korea taking a preemptive approach to lowering interest rates next month, ahead of the United States.
The Monetary Policy Committee has issued a four-time consecutive outlook for a rate cut in three months through the Korean version of forward guidance, and the number of members increased from one to two at the July meeting.
Cho Yong-gu, a researcher at Shinyoung Securities, predicted, “Given that the GDP in the second quarter is lower than expected, the Monetary Policy Committee, which pointed out the imbalance between domestic demand and exports at the May Monetary Policy Committee meeting, is likely to present a minority opinion for a rate cut if it maintains its existing logic.”
Lim Jae-gyun, a researcher at KB Securities, said, “There is a possibility that a minority opinion will be presented in favor of a rate cut at the August Monetary Policy Committee,” but added, “However, we cannot rule out the possibility that a unanimous freeze will be reached.”
However, some say that it is difficult to argue for an interest rate cut due to the overheating of apartment prices, especially in the Seoul metropolitan area, triggered by expectations of an interest rate cut and easing of lending regulations despite the negative GDP growth in the second quarter.
Park Sang-hyun, a researcher at Haitoo Investment & Securities, said, “Consumption and investment momentum are weaker than expected, increasing the need for an early interest rate cut, but the rapid rise in real estate prices, especially in Seoul, is making it difficult for the Bank of Korea to cut interest rates early.”
[서울=뉴시스]
2024-07-28 04:00:19