South Korea's economic prospects continue to deteriorate as major global investment banks further downgrade their growth projections for the nation this year.

According to the Korea Center for International Finance, eight leading global investment banks, including JP Morgan and Goldman Sachs, cut their average growth outlook for Korea to 1.7 percent in December, down 0.1 percentage point from November’s 1.8 percent. The downward trend has persisted for three consecutive months, falling from 2.1 percent in September.

The revised figure is lower than the Korean Finance Ministry’s latest projection of 1.8 percent and the Bank of Korea’s 1.9 percent forecast issued in November. JP Morgan recorded the steepest adjustment, slashing its outlook from 1.7 percent in November to 1.3 percent in December. HSBC also pared back its estimate, lowering it from 1.9 percent to 1.7 percent.

Persistent downgrades reflect Korea’s struggles with sluggish global demand and domestic headwinds, compounded by political instability from President Yoon Suk Yeol’s Dec. 3 martial law declaration and ensuing impeachment proceedings.

JP Morgan attributed its sharp 0.4 percentage point revision primarily to weakened domestic demand, citing subdued consumer sentiment in December, as reflected in reduced credit card spending. The bank warned that a swift rebound in domestic demand is unlikely in the near term.

The grim outlook stretches into 2026, with global banks projecting an average growth rate of 1.8 percent. This would mark the first instance of consecutive sub-2 percent growth years since 1953.

South Korea has historically rebounded swiftly from crises, including a 4.9 percent contraction during the 1998 Asian financial crisis followed by 11.6 percent growth, and a slowdown to 0.8 percent in 2009 that surged to 7 percent in 2010. Even after shrinking 0.7 percent in 2020 amid the pandemic, the economy recovered with 4.6 percent growth in 2021.

For 2026, most banks forecast growth below 2 percent, with only Goldman Sachs and JP Morgan projecting a modest recovery to 2.1 percent.

By Choi Ji-won (jwc@heraldcorp.com)