Things Aren’t Looking So Good – May 2025 Economic Diagnosis and a Three-Month Outlook
Whether it's policy or markets, everything might appear fine on the surface, but the underlying current tells a different story. You only need to glance through a few recent headlines to get a sense of things. The US Federal Reserve has paused its rate hikes, but the Bank of Korea, under the guise of “economic defence”, is still weighing up a possible rate cut. Lee Jae-myung has shifted the focus from real estate regulation to expanding housing supply. Meanwhile, the KDI has slashed its growth forecast to 1.5% and is calling for accelerated structural reforms. The financial watchdog has also taken a stern stance, pressuring Lotte Insurance over its subordinated bond repayment issue.
To summarise in one line:
Capital flow is jammed, growth momentum is fading, and regulation is tightening.
- Interest Rates: The US has paused, but Korea might still move
With the Fed holding rates steady, the global money market has entered “wait-and-see” mode. But Korea is a different case. Although recent export and manufacturing indicators have been slightly better than expected, domestic demand continues to collapse.
Faced with the urgent threat of a recession, the Bank of Korea may be forced to act.
There is cautious speculation of a 0.25% rate cut sometime around June or July.
However, capital outflows and exchange rate volatility remain key risks.
If the Fed suddenly pivots back to a hawkish stance, Korea might be forced to abandon its rate cut plans.
Put simply: even policymakers aren’t certain of the next move.
- Real Estate: Supply over regulation, but the market remains lukewarm
Lee Jae-myung’s core message was clear:
“Rather than curbing investment, we should focus on increasing housing supply.”
It’s a reasonable stance. But in practice, the supply-side boost isn’t materialising.
Higher construction costs, interest burdens, and permit delays are keeping the private sector in a slump.
Policy direction is sound, but its effectiveness is lagging.
Property prices are expected to hold steady rather than fall, though some areas may see a short-term rebound depending on demand for rental housing and listing shortages.
- Growth Rate: What 1.5% really means
The KDI’s projection of 1.5% growth is more than just a statistic —
it’s a warning sign.
It means fiscal policy is losing traction and private sector vitality is fading.
What’s worse, Korea still needs to push through structural reforms — including corporate restructuring, demographic shifts, and education system changes.
But public fatigue is running high.
Can politicians really take on this challenge now?
Most likely, we’ll see a “hold-the-line” mentality rather than genuine reform,
which means the economy may stagnate around the low 1% range for quite some time.
- Finance: Risk asset management is now critical
The Lotte Insurance subordinated bond issue is more than just a corporate mishap.
It’s a signal of fragile trust in the financial system.
That the Financial Supervisory Service directly cited possible legal violations shows that regulators are stepping up pressure.
Over the next three months, financial institutions will likely face scrutiny over solvency, liquidity, and capital adequacy.
Insurance companies, secondary lenders, and small banks are likely to be in the spotlight.
This is the time to reassess your portfolio and reduce exposure to risk assets.
In summary
Here’s what we can expect over the next 3 months:
The Bank of Korea may attempt a rate cut, but that depends on the Fed’s direction
Housing supply remains a policy focus, but prices will likely stay flat
Growth will stay weak, with reform unlikely — expect a “soft landing” narrative
Financial regulation will tighten, and risk management becomes the top priority
Right now, markets are leaning more towards avoidance than conviction.
Stability is needed, but it won’t come quickly.
In the months ahead, your best defence will be a clear strategy against uncertainty.
