摩根士丹利-亚太亚洲暑期学校：韩国经济：稳步加息周期开启-Korea Economics：Start of a Paced Hiking Cycle-20260714

Morganstanley

RESEARCH

httlist

so:/u/wluoe

July14,202606:30AMGMT

AsiaSummerSchool|AsiaPacific

KoreaEconomics:StartofaPacedHikingCycle

MoRGANSTANLEyAsiALimiTEd

KathleenOh

ChiefKorea/TaiwanEconomist

Kathleen.Oh@

+8522848-7340

Forimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

2

Morganstanley

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MoRGANSTANLEyREsEARcH3

SouthKoreaSummer

School2026

4

Korea:MacroOverview

MoRGANSTANLEyREsEARcH5

GrowthtoSeeAbove-PotentialLevelReboundto2.8%Yin2026e

Growthcontributionfromdomesticandexternaldemandtoshowabalanceddynamic

Unfavorablebasetokick-infrom2Q26beforeareboundin2H26

Source:BoK,MorganStanleyResearchforecasts

6

Exports:AFreshRecordHigh

Korea'sJuneexportsrecordedhighestmonthlyBothtechandnon-techmomentumremainsstable

exportvalue

Source:KITA,MorganStanleyResearch

MoRGANSTANLEyREsEARcH7

RisingGlobalDemandforHBMandGenericDRAM

ExportssettojumpsignificantlyonAI-drivendemand

Bitshipmentsexpectedtomaintaintwo-digitgrowth

Source:BoK,MorganStanleyResearchforecasts

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SemisNow40%ofTotalExports,HighestonRecord

Tech-relatedgoodsremainthekeycontributorstoKorea'sexports

Computer(PCs/SSD)exportshaverisensharplyindicatingstrongAI-linkedhardwaredemand

Source:KITA,MorganStanleyResearch

MoRGANSTANLEyREsEARcH9

TechSupercycleBenefittingCapexActivity

Unprecedentedtechsuper-cyclebenefitsexports

Capexandcapitalgoodsimportsrampedupbythis

Source:BoK,MorganStanleyResearch

10

Consumption:Faster-Than-ExpectedRecovery

Weseeamorestableconsumptionpathonfiscalsupport,wealtheffect,andwagegrowth

Bothgoodsandservicesconsumptiontobesustained

Source:BoK,MorganStanleyResearchforecasts

MoRGANSTANLEyREsEARcH11

SupportingStrongLuxurySalesGrowth

Wealtheffectbenefitinghigh-endconsumption,especiallyluxurycategorysales

Luxurysalesgrowthatdepartmentstores

Source:CompanyData,MorganStanleyResearchestimates

12

WageGrowthShowingSignsofaRecovery

Overallwagegrowthbelowthelong-termtrend...

Nominalwagegrowthexcludingbonus(allindustry)

Regular(base)wage,%Y5-yeartrend

5

4

3

2

1

Jul-21Mar-22Nov-22Jul-23Mar-24Nov-24Jul-25Mar-26

...Butearlyyearbonushasnearlytripledthisyear

Early-yearwagegrowthincludingbonus,%Y

Wagegrowthincludingbonus,%Y5-yearaverage

12.17

7.66

5.415.21

2.49

1.46

202120222023202420252026

14

12

10

8

6

4

2

0

Source:MoEL,MorganStanleyResearch

MoRGANSTANLEyREsEARcH13

Wagereboundbroadening-out

Laborincomeasashareoftotalhouseholdincomehasfalleninthepasttwoyearsvs.returnonassets

Koreanominalwagegrowth-totalgrowthincludingbonus2023202420251Q26

Totalwageincludingbonus,%Y2.593.073.1111.14

0.56

5.91

0.10

5.49

Miningandquarrying

Manufacturing3.603.253.3012.41

Electricity,gas,steamandwatersupply

6.47

6.40

2.57

(1.89)

Sewerage,wastemanagement,materialsrecoveryandremediationactivities

3.07

3.37

2.54

2.18

Construction

4.00

3.01

2.70

21.80

Wholesaleandretailtrade

3.98

2.99

2.57

11.65

Transportation

4.04

3.51

3.57

6.31

Accommodationandfoodserviceactivities

4.70

1.81

3.51

31.14

Informationandcommunications

2.66

4.35

3.10

1.04

Financialandinsuranceactivities

0.67

2.08

6.16

8.82

Realestateactivitiesandrentingandleasing

1.06

1.59

1.64

0.95

Professional,scientificandtechnicalactivities

1.79

3.55

2.89

9.32

Businessfacilitiesmanagementandbusinesssupportservices

3.99

3.79

2.13

8.32

Education

2.04

2.94

2.35

5.56

Humanhealthandsocialworkactivities

0.30

2.83

4.15

7.56

Arts,sportsandrecreationrelatedservices(0.58)1.871.9213.71

Membershiporganizations,repairandotherpersonalservices6.244.072.427.47

Source:BoK,MorganStanleyResearch

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CPIInflation:FromSupply-sidetoServicesBuild-up

Weseeaninflationtrajectoryabove2%through2027;peakingin2Q26WeraiseourCPIinflationforecastto

2.5%forthisyearwiththepeakat

2.9%in2Q26.

Reflectingtheelevatedenergypricesandfaster-than-expecteddomestic

recoverystory,weforecastCPI

inflationat2.5%andcoreinflationat2.3%for2026.

Whilehigheroilpricesareyettohavebeenfullypassedthroughtodomesticservicesinflationin1Q26asthe

administeredpricesmoothingand

retailoilpricecapsareinplace,we

forecastCPIinflationtoriseto2.9%Yin2Q26beforeitstabilizesat2.5%in2H26.

Source:BoK,MorganStanleyResearchforecasts

MoRGANSTANLEyREsEARcH15

CPIInflation:FromSupply-sidetoServicesBuild-up

Demand-drivenservicesinflationlookssettoclimbtothe2%levelby2H26vs2.4%pre-Iranconflict

Realrateextendsfurtherintonegativeterritoryasinflationexpectationsjumpto2.9%inApril

Source:BoK,MorganStanleyResearchforecasts

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OilPricestoFluctuateWhileServiceInflationhasNarrowDownside

Goodsinflationtofluctuatewhileservicestostaystickyforalongerduration

Source:BoK,MorganStanleyResearch

MoRGANSTANLEyREsEARcH17

MonetaryPolicy:StartofaPacedHikingCycle

WeseefourBoKhikes,startingfromJuly2026,toaterminalrateof3.50%bymid-2027

BoKpolicyratetrajectoryandneutralraterange

BoKpolicyrate,%

OurtrajectoryontheBoK4

3.5

3

2.5

2

1.5

Jan-24Jun-24Nov-24Apr-25Sep-25Feb-26Jul-26Dec-26May-27

Onthemonetaryside,weexpectfourhikesinthiscycle,takingtheterminalrateto3.5%by2Q27.

WeexpectthefirsthikeinJuly,followedbyOctober,JanuaryandApril2027.

TheBoĸ’srenewedconfidenceinfundamentals-drivengrowthandsustainedinflation–ratherthanatransientrebound–leadsustoshiftourviewfromanincrementalhikingcycletoanearlierandlongerone.

Whilewedonotruleoutback-to-backhikesthisyear,

theBoĸ’scoreinflationforecast–remainingelevatedat2.4%and2.3%throughnextyear–supportsasustainedmovedeeperintotighteningterritoryratherthanarapidlyfront-loadedpath.

Source:BoK,MorganStanleyResearch

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ConfidentonGrowth,LookingtoHikeonInflation

Asharpturntohigherrateprojectionsignalsan

immediatestarttothehikingcycleandpotentiallyalonger-lastingone

BoKgrowthforecastsinlinewithexpectationsat2.6%fornextyearwhileinflationforecastlooksstickierat

2.7%vs.ourforecastof2.5%;coreinflationforecastat

Source:Haver,MorganStanleyResearch

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MoRGANSTANLEyREsEARcH19

StickyServicesInflationandMonetaryPolicy

Amplifiedwealtheffectlikelyimpliesinflationary

pressurebuild-up;KOSPImovehighlycorrelatedwithastatisticalleadof15-18months

WeexpectahikingcycletostartfromJuly2026throughmid-2027

Source:BoK,Fed,MorganStanleyResearchforecasts

20

HouseholdDebtSlowingDownOverall

Korea’sYoYHouseholddebtgrowthhasremainedunder3%inpast3years

2000

1900

1800

1700

1600

1500

1400

1300

1200

1100

1000

1Q164Q163Q172Q181Q194Q193Q202Q211Q224Q223Q232Q241Q254Q25

Mortgage

Householdcredit,KRWtn

14

12

10

8

6

4

2

0

-2

Korea:Householddebttrend

Otherloan%Y(RHS)

Mortgagedebtgrowthhasbeenthemaindriverofmarginaldebtincrease

Quarterlychanges:mortgagevsotherloans

MortgageOtherloanHouseholdcredit,KRWtn

1Q164Q163Q172Q181Q194Q193Q202Q211Q224Q223Q232Q241Q254Q25

50

40

30

20

10

0

-10

-20

Source:BoK,MorganStanleyResearch

MoRGANSTANLEyREsEARcH21

WhyIsKRWSoWeak?

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KRWHasPotentialtoOutperform

OurFXstrategyteamislookingformoderateKRWappreciationgivenourglobalteam'sbearishUSDskewamidimproved

prospectsforexporters'FXconversion.Themagnitudeofanypotentialappreciationmaybeconstrainedthoughbycontinuedequityoutflowsfromforeigninvestors–albeitataslowerpace–andKorearetailinvestors.

Korea'scurrentaccountsurplushassurgedwithstrongexports

KRWhasweakeneddespiteasurgeinitstermsoftrade

Source:Bloomberg,Macrobond,MorganStanleyResearch

MoRGANSTANLEyREsEARcH23

WhatExplainsKRWWeaknessThen?

Equitieshavebeenthemainsourceoffinancial

outflowsfromKorea,whileothercomponentshavebeenstable

Equityoutflowsweredrivenmorebydomestiinvestorslastyearandmorebyforeigninvestorsthisyear

Source:Bloomberg,Macrobond,MorganStanleyResearch

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UnderlyingFundamentalsSupportiveofKRW

Afterrecordingsluggishgrowthin2025,astrongreboundisprovidingsupportfortheKRW

Korea'squarterlyGDPgrowthtrajectoryislikelytooutpacetheUSfrom1Q26onwards

Source:BoK,BEA,MorganStanleyResearchforecasts

MoRGANSTANLEyREsEARcH25

ExportReboundandRecord-HighCurrentAccountBalance

Exportshaveturnedaroundthankstothesemissuper-cycle

Record-hightradebalancesurplusprovides

underlyingstrengtheningpressuretotheKRW

Source:KITA,MorganStanleyResearch

26

Boĸ’sPivotTowardaRate-HikingCycle

BoKhasmadeasharpturnaroundinitsratepath,signalingapotentialhikeassoonasJuly

NarrowingofratedifferentialshouldaddanotherunderlyingbackdropfavorableforKRWrebound

Source:BoK,Fed,MorganStanleyResearchforecasts

MoRGANSTANLEyREsEARcH27

ChangeinBoPdynamics:CompressedReserveAssets,WeakeningPressureonFX

Recentincreaseinfinancialaccountassetsledtothecompressionofreserveassets

AdiminishedreserveassetbufferhastranslatedintoastructurallyweakerFXbackdropfortheKRW

Source:Bloomberg,BoK,MorganStanleyResearch

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