KOSPI Returns to 3000 Points, Market Confidence Boosted
The Korea Composite Stock Price Index (KOSPI) surged significantly this week, with intraday gains expanding to 0.9%, closing at 3003.81 points. This marks the first time it has surpassed the 3000-point mark since January 3, 2022. The breach of this crucial technical level not only indicates a warming market sentiment but also reflects investors' optimistic expectations of policy stimulus measures.
Despite the recent economic slowdown pressures in South Korea, this stock market performance highlights the capital market's hope for future growth prospects. Especially amidst a turbulent global macroeconomic environment, South Korea remains one of the few Asian markets on a fast recovery track.
Goldman Sachs Expects Additional Budget to Boost GDP Growth
In a recent report, international investment bank Goldman Sachs noted that the South Korean government's newly proposed second supplementary budget is expected to result in an increase of approximately 14.9 trillion won in net fiscal spending. Building on the first budget's contribution of 0.2 percentage points to GDP, Goldman Sachs anticipates that the new budget will further add 0.1 percentage points to GDP growth in 2025.
In other words, the two budget proposals combined are expected to boost South Korea's GDP growth by 0.3 percentage points in 2025. Goldman Sachs believes that fiscal policy remains the most effective tool currently, especially given the limited room for maneuver in central bank monetary policies. Its impact through active fiscal spending is more direct.
Economic Expectations Still Under Pressure, 2025 Growth May Slow
Despite the market's short-term performance shining, the overall economic outlook for South Korea still faces challenges. According to the latest forecasts from the Bank of Korea and the Korea Development Institute (KDI), South Korea's economic growth in 2025 is expected to be only 0.8%, far below the 2.0% in 2024. Both institutions have recently lowered their previously more optimistic growth expectations due to weak global export demand, sluggish domestic demand recovery, and rising geopolitical uncertainties.
This indicates that while fiscal stimulus can provide a short-term boost, achieving sustainable recovery will require concerted efforts, including improving the business investment environment, enhancing labor market flexibility, and further promoting technological and manufacturing upgrades.
Market Focuses on Policy Follow-Up and External Risks
The market is currently keenly observing the future policy direction of the South Korean government. Particularly in the context of the end of the U.S. interest rate hike cycle and increasing economic uncertainty in China, South Korea needs to strike a balance between promoting growth and maintaining macroeconomic stability.
Additionally, investors are watching whether the Bank of Korea will adopt more accommodative measures in the second half of the year to align with fiscal policy. While KOSPI's breakthrough is exciting, the ability to remain stable and continue upward will depend on the effectiveness of the economic fundamentals and policy coordination.
