The dollar-won exchange rate is expected to be 1,450 won in the first half of the year… “We may not agree with the yuan”
Goldman Sachs predicted that Korea’s economic growth rate in 2025 will fall below 2% and hit 1.8%.
At a meeting held at the Goldman Sachs Seoul branch on the 26th, Kwon Koo-hoon, senior economist (executive director) in charge of Asia at Goldman Sachs, said, “The trend of trade slowdown has already begun in the second half of the year,” adding, “Uncertainty about the future U.S. trade policy will be a factor in the sluggish exports and investments of companies.” “He said.
However, he added, “Although fiscal expansion is difficult, I think there is no need to go for austerity compared to last year and this year.”
Economist Kwon said, “The U.S. trade policy is a combination of upside and downside risks.” He added, “Goldman Sachs believes that the probability of the U.S. implementing a universal tariff that raises tariffs on all products in all countries is less than 50%, and even if it is implemented, it will be implemented sequentially. “It is expected that this will be done,” he explained.
He also said that the United States’ tendency to reduce imports from China for ‘ATP’ (Advanced Technology Products) and strategic goods (Strategy Goods) could be an opportunity for Korea.
Economist Kwon said, “Even if the United States tried to produce (the goods in question), it would take 4 to 5 years just to build a factory, so we will supply them from Korea or Taiwan, which produce the items, instead of China,” adding, “Electronics, machinery, shipbuilding, etc. “This applies here, and there may be an upside risk of up to 15-20% of Korea’s export share,” he explained.
Goldman Sachs predicted that the Bank of Korea would lower Korea’s benchmark interest rate from the current 3.25% to 2.25%.
Economist Kwon predicted, “Whether interest rates will fall rapidly or slowly will depend on the direction of exports, investment, the U.S. dollar, and interest rates in 2025.”
He continued, “Last October, in the Monetary Policy Committee’s guidance for the next three months, most of the Monetary Policy Committee members but one opposed the cut, and the gross domestic product (GDP) in the third quarter was so poor,” adding, “Because there are so many uncertainties in the trade outlook for 2025. “I think (interest rates) will be lowered in January and will become more dovish in the future,” he added.
Additionally, Economist Kwon predicted that the dollar-won exchange rate will rise to 1,450 won in the first half of 2025.
Economist Kwon said, “When the US tariff policy is announced around January 2025
there is a high possibility that the Chinese yuan, which has been depressed, will weaken,” adding, “Unlike in the past, the won may not sympathize with the yuan, and the US trade policy will change in January or February. “When upside risks become clear, there is a high probability that the won will strengthen compared to other countries,” he explained.
(Seoul = News 1)
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How might changes in U.S. trade policy affect South Korean exports and corporate investments?
Goldman Sachs has forecasted that South Korea’s economic growth rate will decline to 1.8% in 2025, indicating a slowdown in trade that began in the second half of the previous year. Kwon Koo-hoon, the executive director and senior economist focused on Asia, discussed this outlook during a meeting in Seoul, stressing the uncertainty surrounding U.S. trade policies as a significant factor affecting South Korean exports and corporate investments.
Despite predicting a challenging economic environment, Kwon noted that while fiscal expansion may be difficult, there is no need for strict austerity measures compared to previous years. He mentioned the complexities of U.S. trade policy, suggesting that a universal tariff on all countries is unlikely, and any tariffs that are introduced will likely roll out gradually.
Kwon also pointed out that the U.S.’s move to reduce imports from China in advanced technology and strategic goods may present an opportunity for Korea, especially since producing these goods domestically in the U.S. would take several years. This situation could potentially boost Korea’s export share by 15-20% in sectors like electronics, machinery, and shipbuilding.
Furthermore, Goldman Sachs forecasts a reduction in Korea’s benchmark interest rate from 3.25% to 2.25%. The pace of this decrease will depend on various factors, including export performance and investment flow in 2025. Kwon anticipates that the dollar-won exchange rate may rise to 1,450 won in the first half of 2025, influenced by U.S. tariff announcements that might weaken the Chinese yuan but may not impact the won in the same way as before.
the outlook remains cautious, with significant attention on international trade dynamics and their implications for the South Korean economy.