UBS Economics-APAC Economic Perspectives _Korea on track for further grow...-118518003

ab28 October 2025Global ResearchAPAC Economic PerspectivesKorea: on track for further growth recovery, further pause in rate cutAhead of consensus 3Q growthKorea's GDP expanded by 1.2% q/q and 1.7% y/y in 3Q25, ahead of Bloomberg consensus of 1.0% q/q and 1.5% y/y, respectively. This sequential expansion also marks the fastest pace since 1Q24. We project Korea's GDP to grow by 1.2% for the full year 2025, compared to the consensus forecast of 1.0%. The positive surprise from the latest growth figure supports our above-consensus expectation.Dual enginesThe improvement in growth is supported by both external and domestic factors. As already reflected in the monthly data, Korea's exports continued to display strength; real exports contributed 0.6ppt to the sequential GDP expansion. Unlike previous quarters, private consumption expanded by 1.3% q/q over the quarter—a sharp improvement from the 0.1% sequential contraction in 1Q25 and a significant improvement over the 0.5% growth in 2Q25. We believe the reduction in macro uncertainties has helped facilitate better transmission of tech-driven export growth and the wealth effect on private consumption. Real capital formation swung to sequential expansion for the first time in five quarters, due to an increase in government investment and fading drag from private investment.Maintain above-consensus growth projection, further recovery aheadWe maintain our above-consensus 2025 full-year GDP growth projection at 1.2%. High-frequency data suggests the export driver has remained resilient into 4Q25, with strong momentum in tech exports. Memory exports have displayed a clear sign of an upward break in the historical pattern (Figure 5). Even with a slight moderation, the latest consumer sentiment index is still at the top end of its historical range. The overall stable macro backdrop should continue to support further recovery in consumption growth. We also expect the growth recovery to continue into 2026, projecting full-year GDP growth to improve to 1.8%.Further delay of next rate cut, but easing cycle remainsWe are removing our Bank of Korea (BoK) rate cut projection for 2025, and expect the policy rate to stay put at 2.5% by year-end. With continued improvement in overall growth, we believe the BoK has more room to observe the housing market's development, domestic inflation, and financial stability. However, we believe the BoK is taking a pause rather than marking the end of the easing cycle. Even with the improvement in growth, the growth rate is still below the recent average. The overall housing market looks stable, as does inflation. We believe the real interest rate and growth combination still points to a monetary easing cycle (Figure 8). Therefore, we expect the BoK to continue to ease monetary policy after collecting more data and observations in the months ahead. We expect the next 25bps rate cut to come at the February 2026 meeting.This report has been prepared by UBS Securities Asia Limite