[Start Economy] KDI Downgrades Economic Growth Forecast...South Korea's economy 'dark clouds' on Trump's return?

■ Host: Anchor Lee Jung-seop, Anchor Cho Ye-jin
■ Starring: Professor Seo Eun-sook, Department of Economics and Finance at Sangmyung University

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information. Please specify [YTN News START] when quoting.

[Anchor]
We deliver the latest economic news quickly and kindly. Start Economy, today with Seo Eun-sook, a professor of economics and finance at Sangmyung University. Welcome, professor. The Korea Development Institute's KDI continues to release growth forecasts for Korea, but the recent announcement showed that it has lowered its eye level. What's the background?

[Seo Eun-sook]
First of all, in the announcement of the economic outlook for the second half of the year on the 12th, we lowered it from 2.5% to 0.3 percentage points and announced it as 2.2%. More importantly, it is predicted that next year's economic growth rate will be determined around 2.0% of Korea's potential growth rate. He explained that the biggest reason for this downward revision was that the sluggish domestic demand did not recover faster than expected. As a result, I think the Bank of Korea should have lowered interest rates a little faster to recover domestic demand, but it explained the parts that it lowered it later than expected. I think that's why I made a presentation about it.

[Anchor]
What do you think of the opinion that the timing of the interest rate cut is late?

[Seo Eun-sook]
At that time, the household debt issue was very big. So, in a way, price stability is a very important goal for the Bank of Korea, but financial stability is also one of the important tasks that the Bank of Korea should do. So even though the price was set to some extent because of that, I couldn't lower the interest rate. However, the U.S. cut interest rates as it fell by a big cut, but the biggest issue could be an issue even if the base rate is lowered late and quickly, but the bigger problem is that the market interest rate is not lowering now, so the data shows some recovery in consumption as the market interest rate falls. Nevertheless, it may get better, but as you know, the loan interest rate is very high at the level of household debt control, and it is still regulated. In that state, there is a limit to increasing consumption because people still have a lot of interest burden.

[Anchor]
Then, if the upcoming Monetary Policy Committee continues to open in the future, do you think we should continue to cut interest rates once more?

[Seo Eun-sook]
The U.S. lowered its benchmark interest rate by 25BP on the 7th. So I think that will be a burden to the Bank of Korea. So, I think the central bank will probably put more weight on lowering interest rates because domestic demand is very delayed in recovery and growth rates continue to fall.

[Anchor]
Anyway, if there is a risk factor that puts pressure on our economy, there will be sluggish domestic demand inside, and externally, we will have risks for Trump as he returns to the White House in the United States. What do you think about this?

[Seo Eun-sook]
The biggest risk is the tariff barrier issue. an emphasis on American protectionism Since he said he would do this in policy, this will become a reality next year, the tariff issue. In particular, Korea is highly dependent on exports, so total export growth will probably decrease significantly next year. In fact, when the Korea Economic Development Institute lowers this year's economic growth rate, the risk part of Trump's second-term tariff barrier is not taken into account. So, considering this part, we are now forecasting 2.0% next year, but there is a concern that this will also be a very difficult situation to achieve.

[Anchor]
While the U.S. market is active right now as well as the tariff barrier, our stock market seems to be losing steam. First of all, what do you think is the cause?

[Seo Eun-sook]
It fell by a huge margin. Between the 5th and 12th, the KOSPI and KOSDAQ indexes fell 4.11% and 5.78% respectively from just before the U.S. presidential election until the 12th. It went down a lot. That's why it fell the most among the major global politicians. In a way, the industries themselves, which have a very large tariff barrier on Korea, are semiconductors, secondary batteries, and automobiles. However, this part of Korea's market capitalization is very large, and it is very affected. That's why such a situation occurred due to the representative damaged industry. So one of the second issues after Trump's election is that the dollar is going up very much. Therefore, the rise in the value of the dollar is likely to serve as a very negative factor for Korean exporters. The important thing is that domestic listed companies have recently released third-quarter results, which are very bad. So half of the major companies that have already announced their earnings shock came. I recorded it. So, the dollar's value has been rising since Trump's victory, there are tariff barrier issues, and the performance of domestic companies is not good as a whole, so investors, especially foreign investors, are selling a lot and leaving the domestic stock market, and domestic investors themselves seem to be turning their attention to bitcoin or overseas stock markets.

[Anchor]
Then, how long do you expect the alienation of our stock market to continue?

[Seo Eun-sook]
The most important thing is that the stock market reflects the company's performance. Unless Korean companies perform well, the economic growth rate does not improve. Then, it is very difficult to appreciate the value of a company. So I think the most important thing is that it's time to think about how we can find momentum to grow the country's economy again.

[Anchor]
In the end, investment is concentrated only when the numbers and indicators are good. In the case of the New York Stock Exchange, it has continued to hit an all-time high. The Trump rally seems to have broken, how was it last night?

[Seo Eun-sook]
All three major New York indexes were at their highest levels. So the 6th was the presidential election, and the 7th was the Fed cut its benchmark interest rate. The S&P index also reached a record high. In particular, the Dow Jones, which includes large bank stocks, rose a lot until the 11th as expectations grew, thinking that financial regulations would be greatly eased by policy. It went up a lot last night. So after hitting the peak, I think I'm going in a mood that's being adjusted a little bit.

[Anchor]
The New York Stock Exchange hit an all-time high, but to talk about the domestic stock market, where the situation mentioned earlier is not easy, Samsung Electronics has been recording a new low for 52 weeks and SK Hynix has been on the decline for two days. What do you think of this atmosphere in the stock market that it is hard to expect a turnaround until the first quarter of next year?

[Seo Eun-sook]
As the first one explained a little while ago, there is a tariff barrier issue. There is also an issue of reducing subsidies. Therefore, if subsidies are reduced, subsidies for domestic semiconductor companies will be reduced. So, if you don't receive support from the US government, it can be very difficult to build a local semiconductor factory. In a way, it is difficult for the infrastructure itself to be very good. If tariffs are imposed next, the semiconductor industry will be hit hard. So, as these parts work together, it seems that Samsung Electronics' stock price continues to fall. SK Hynix is in the same situation. However, one of the reasons why Samsung Electronics is more affected now is that its third-quarter performance was very sluggish. Next, it seems that HBM memory has no choice but to evaluate that the weakening of its competitiveness continues to reduce the value of Samsung Electronics.

[Anchor]
You pointed out the won-dollar exchange rate earlier, but there is a psychological resistance line of people. I don't think it should exceed 1,400 won, but in the end, it exceeded the closing price, but this is the first time in two years, so is there a possibility that it will rise further in the future?

[Seo Eun-sook]
When we have a lot of uncertainty, the sentiment to hold safe assets is formed among investors. Expectations are high for the second Trump administration, but there is also a lot of uncertainty. The same goes for other countries. So as you mix these things up, there's a lot of people in the foreign exchange market who want to keep buying dollars. As a result, the dollar's value is bound to rise, and the dollar's price is bound to rise. And then there's a very high possibility that we'll impose tariffs on major countries, and then we'll have to expect the dollar to keep going up because of the fear that the widening fiscal deficit will eventually reignite U.S. inflation. There are a number of issues that could be a factor in strengthening the dollar. For example, the vote count for the House of Representatives is coming to a close, and the Republican Party is very likely to win a majority. So, there is a high possibility that they will grow and surplus the policies they want, so aren't we expressing it as red income? Since there is a very high possibility that this will become a reality, it is highly likely that the dollar will continue to strengthen. Especially in Korea, foreigners are selling stocks in the stock market now. In a way, these are factors that further increase the won-dollar exchange rate. So it went up to 1,400 won, but exporters say we sell the exchange rate, selling the dollar. This volume is not big either. As a result, there is not much reason to release a lot of dollars on the market. So, I hope that it will continue to be around 1,400 won until the first half of next year.

[Anchor]
I'm sure a lot of people are curious about this news today. As Trump has been called the president of virtual currency since he was a candidate, Bitcoin is soaring so much now that Trump is elected. It's going up and up without knowing the end, so why is it going up like this?

[Seo Eun-sook]
As you just said, in the end, as an elected president, I have very high expectations for the pro-virtual currency policy I pledged before. As a result, I think it's continuing to rise. Then, not only virtual currency, but usually, after the government comes in as a whole, stocks rise or some products rise, but I think this is very focused on Bitcoin. And we can say that the concentration on certain stocks is very strong compared to other regimes.

[Anchor]
When we saw the breaking news a little while ago, it was reported that Bitcoin even hit $90,000. As a result, there is a possibility that the market capitalization of Bitcoin itself will exceed our domestic stock market as money continues to flow?

[Seo Eun-sook]
Including Bitcoin and virtual assets, the total market capitalization exceeded $3 trillion. It's been three years since November 2021. In fact, bitcoin accounts for almost half of the cryptocurrency market. As a result, the market capitalization is worth $1.75 trillion. The market capitalization of the domestic stock market is $1.7 trillion. So in the end, it can be said that it exceeded the market capitalization of Korea's domestic stock market. So it's increasing on a very large scale.

[Anchor]
Also, how long will the Trump rally continue, with Elon Musk's Tesla stock price soaring, which helped Bitcoin and Trump. Since this upward trend is now right after the election, is it so crowded?

[Seo Eun-sook]
The price of all assets, especially the stock price in the stock market, reflects the expectations we have. Expectations that Trump said this would improve now that he was elected are already being reflected. It is very difficult for that expectation to continue until a new issue or event is released. Nevertheless, in the case of virtual currency, the government said it would use a pro-virtual currency policy, so there is a high possibility that it will be a very volatile market depending on what policies will be released from next year. So it could be a policy that I didn't want it to be. It may be such a policy that does not significantly affect the increase in value. If those parts are not as good as expected, the price may fall, so we can predict that it will be a very volatile market.

[Anchor]
Tesla even got adjusted last night, and with Bitcoin prices going through the roof, there's a kind of country that benefits from this, so smiling?

[Seo Eun-sook]
For the first time in the world, Bitcoin is called a legal currency. The currency is set according to the value set by the government. The country that made Bitcoin a legal currency is El Salvador. So in 2021, when the cryptocurrency boom hit, Bitcoin was introduced as a legal currency for the first time in the world. So I used the national budget to buy all the bitcoin then. As of the 11th, the El Salvador government has 5930.77 Bitcoin. If this is converted, it is about 703.5 billion won in Korean money. Of course, since we haven't sold yet, it seems that the unsold profit is achieving around 90%.

[Anchor]
Lastly, I think there are some people who think, "Should I go back to the country quickly after seeing this news?" If you point out what you need to keep in mind when investing.

[Seo Eun-sook]
As I explained just before, the price has risen because various expectations are reflected. The same goes for certain stocks. In this case, before I think about buying it now, I have to figure out the reason why the price of this bitcoin has to go up. So, as I said again, unless there are new issues, so new events that can increase the value of Bitcoin, it can actually be a very volatile market. So you have to be very careful about those things. All assets are valued in the market, and when people's psychology determines their psychology, it's when they decide that it's worth enough to go up. So basically, there is a very high possibility of losing money if you invest without necessarily grasping these parts because there is a very high endogenous value of assets, but it can continue to rise.

[Anchor]
He pointed out that investment should be made rationally. So far, I have been with Seo Eun-sook, a professor of economics and finance at Sangmyung University. Thank you for talking today.