The Bank of Korea’s meeting on Thursday will be a highlight of the week. The market widely expects no action, but it will pay close attention to the latest quarterly macro outlook report. With inflation anchored at 2% and growth projected to pick up in the second half of 2025, financial stability remains the priority. The BoK will probably wait for clearer signs of moderation in house prices before taking action. It may raise its 2025 GDP forecast from 0.8% year-on-year to 1.0%, and its 2026 GDP forecast from 1.6% to 1.7%. GDP in the second quarter was stronger than expected. On top of that, consumption is likely to soar in the third quarter, largely due to government cash payout programmes. This will be reflected in next week’s consumer sentiment survey and retail sales, which should improve compared to the previous month. However, the fiscal outlook could be a drag unless more expansionary policies are implemented. Also, sluggish construction investment should weigh on overall growth. The BoK will remain cautious amid tariff-related uncertainty, even as the US–Korea trade deal should be welcomed by the central bank. The inflation outlook is expected to be revised up to 2.0% for 2025 (vs a 1.9% May outlook), with the 2026 outlook unchanged at 1.8%. A below-2% rate paves the way for further easing. Even if the BoK revises the growth outlook upwards, it would still be below potential GDP. With the negative output gap expected to persist, the BoK should ease monetary conditions — most likely in October.
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