2025-06-16-花旗集团-韩国经济_住房稳定措施和较温和的财政刺激可能维持韩国央行降息的可能性_15页_276kb

South Korea Economics Summary

Core Content

This document provides an analysis of the current economic situation in South Korea, with a focus on housing market dynamics and fiscal policy implications for the Bank of Korea (BoK) and the government's potential response.

Main Points

• Housing Market Trends:

  • Weekly prices of Seoul residential condominiums have risen above an annualized 10% level in mid-June 2025.
  • The BoK is concerned about the financial stability implications of this rapid price increase, as it may not be acceptable.
  • The BoK has previously delayed the start of its rate cutting cycle due to housing price rallies, such as in August 2024, which were moved to October 2024.
  • The Lee administration is expected to release a housing stabilization policy package by June 2025.

• Fiscal Policy:

  • The Ministry of Economic and Finance (MoEF) is set to release a second supplementary budget proposal on June 19th, which is expected to be at least KRW20 trillion or more.
  • This is likely to be smaller than the KRW35 trillion fiscal stimulus promised by President Lee during the campaign.
  • The proposed budget includes around KRW20 trillion in extra spending and KRW5 trillion in extra revenue, leading to an estimated KRW25 trillion net issuance.
  • The cumulative extra spending for 2025 is expected to reach around KRW33.8 trillion, or 1.3% of GDP, which could boost economic growth by 0.26–0.52 percentage points over four quarters.

• Impact on BoK Rate Cuts:

  • The combination of housing stabilization measures, less aggressive fiscal stimulus, and the potential impact of US tariffs may keep the scope of BoK rate cuts within the year.
  • The next rate cut could be delayed to October 2025 if housing prices continue to rise.
  • The BoK's base case assumes a rate cutting cycle of 25 basis points each in August 2025, November 2025, and February 2026, aiming for a terminal rate of 1.75%.

• Factors Driving Housing Market Rally:

  • Limited new supply in Seoul's apartment market from 2026–2028.
  • Preference for single luxurious houses.
  • Learning effects from previous left-wing administrations.
  • Front-loading before the third Debt Service Ratio (DSR) rule from early July.
  • Expectations for an accommodative policy mix.

• Budget Implications:

  • The second supplementary budget would increase KTB (Korea Treasury Bill) gross issuance for 2025 to around KRW232.1 trillion, compared to the average of KRW169.5 trillion for 2020–2024.
  • The budget is likely to be financed mainly through extra KTB net issuance, given limited scope for additional tax revenue and public funds.

Key Information

• Housing Price Concerns: The BoK is wary of the potential side effects of aggressive rate cuts on the housing market, particularly in Seoul.
• Government Response: The Lee administration is anticipated to implement a housing stabilization package, potentially including restrictions on high-priced mortgages and expanded land transaction zones.
• Fiscal Stimulus: The second supplementary budget is expected to be smaller than the campaign promise of KRW35 trillion.
• Economic Impact: The fiscal stimulus is projected to have a moderate effect on economic growth, with a multiplier assumption of 0.2–0.4.
• Timing of Rate Cuts: The BoK's rate cutting cycle is likely to be delayed if housing prices continue to rise, with a tentative timeline of August 2025, November 2025, and February 2026.

Figures and Tables

• Figure 1: Weekly prices of Seoul residential condominiums have exceeded the annualized 10% growth rate in mid-June.
• Figure 2: The BoK has warned about the side effects of excessive rate cuts on the housing market.
• Figure 3: The BoK delayed the start of its rate cutting cycle to October 2024 due to the housing price rally.
• Figure 4: Limited new supply in Seoul's apartment market is expected over 2026–2028.
• Figure 5: The second supplementary budget is expected to increase KTB gross issuance for 2025 to KRW232.1 trillion.
• Figure 6: The second supplementary budget is expected to result in an extra KRW25 trillion net issuance.

Analyst and Disclosure Information

• Analyst: Jin-Wook Kim (AC)
• Contact: +82-2-2077-4229, jinwook.kim@citi.com
• Important Disclosures:
  • Citi Research may have conflicts of interest due to its business relationships with companies covered in its reports.
  • The Firm is a liquidity provider and may trade in the securities discussed.
  • Research recommendations are not guaranteed and are subject to change.
  • The Product is for informational purposes only and is not an offer to buy or sell securities.
  • Past performance is not indicative of future results.
  • The Firm may provide different research products and services to different classes of customers.
  • Non-US securities may entail additional risks, including limited information, less liquidity, and volatility.

Conclusion

The current economic outlook for South Korea is shaped by the housing market's rapid growth and the government's response to it. While the BoK is likely to proceed with rate cuts, the timing and extent may be influenced by housing price trends and fiscal policy measures. The second supplementary budget is expected to be a key part of the government's strategy to support the economy, with a focus on balancing fiscal spending and revenue.