NABO Economic Trends & Issues (No. 139)


 

Published on January 21, 2026
Published by Macro-Economic Analysis Division


 

■ Economic trends
   The Korean economy has continued its improvement trend driven by the recovery in services and exports. However, the transition to a full cyclical upturn remains delayed, as weakness in the construction sector has persisted and the domestic shipment index has declined.
   In November, all-industry production increased 0.9% MoM, while both manufacturing and services output rose slightly by 0.7% MoM. The cyclical component of the coincident composite index declined by 0.4p MoM. Retail sales fell 3.3% MoM but rose 0.8% YoY. The value of construction output and capital expenditure increased by 6.6% and 1.5% MoM, respectively. As of October, the cumulative central government fiscal expenditure increased by KRW 60.6 trillion YoY. In December, the trade balance recorded a surplus of USD 12.18 billion, with exports rising 13.4% YoY. Meanwhile, consumer prices increased by 2.3% YoY, reflecting continued upward pressure in both goods and services prices. The spread between the 3-year Korean Treasury Bond yield and the policy rate stood at 51bp. The KOSPI index rose sharply from the previous month-end to 4,214.2. In addition, household loans continued to expand in October. In November, the housing price index rose 0.24% MoM, while housing transaction volume decreased. Corporate loans increased by KRW 49.2 trillion YoY in October, and equity and the issuance of corporate bonds grew by KRW 21.9 trillion MoM in November. In December, the won/dollar exchange rate fell MoM to 1,434.9, although volatility increased. Foreign reserves decreased MoM to USD 428.1 billion.  

■ Economic issue analysis: Recent drivers of GDP deflator movements and implications
   While domestic consumer prices have stabilized around the 2% target, the pace of increase in the GDP deflator has accelerated, widening the gap between the two price indicators. Unlike consumer prices, which are compiled based on household consumption items, the GDP deflator is a price index encompassing all GDP expenditure components such as consumption, investment, exports, and imports, and, together with real GDP growth, determines nominal GDP growth. Given that fiscal projections and tax revenue estimates are calculated based on nominal GDP, it is necessary to analyze the key drivers of GDP deflator movements. Therefore, this report examines the factors underlying recent volatility in nominal growth with a focus on the GDP deflator and presents related policy implications.
   Empirical results indicate that net exports have made a larger contribution to recent increases in the GDP deflator than domestic demand. In particular, in 2025, improving terms of trade, driven by rising semiconductor prices amid the expansion of AI and continued declines in international oil prices, are expected to exert upward pressure on the GDP deflator.
   Based on empirical analysis, the annual growth rate of the GDP deflator for 2025 is estimated at 2.5–2.7%, while nominal GDP growth is projected at 3.5–3.7%. This represents an upward revision of 0.3–0.5%p from the October 2025 nominal growth forecast of 3.2%, reflecting a larger increase in the GDP deflator driven by improved terms of trade. In 2026, if terms of trade continue to improve, supported by higher export prices, particularly for semiconductors, and lower international oil prices, upward pressure on the GDP deflator from external factors is expected to strengthen further.