High inflation, weak won to weigh on Korean economy in 2026: experts

(Kim Ho-young)

Economists see high inflation and a weak won weighing on South Korea’s economy next year, pressuring domestic demand and growth.

According to an online survey conducted by Maeil Business between December 15 and 19 among 104 economists, more than half predicted that the annual average won-dollar exchange rate next year would remain above 1,450 won per dollar.

Nearly 36 percent of respondents forecast the exchange rate to be between 1,450 won and 1,500 won per dollar, while another 22.1 percent expected the won to weaken beyond 1,500 won per dollar.

The results suggest that many economists now view 1,450 won per dollar as a new normal.

A weaker currency tends to push up import and producer prices, feeding through to higher consumer inflation, a dynamic economists appear increasingly concerned about.

Only 15.4 percent of the respondents said inflation would remain below 2 percent next year while the remaining 84.6 percent expected inflation to rise by at least 2 percent.

Eighteen economists forecast inflation would exceed 3 percent next year. An annual inflation rate in the 3 percent range would mark the first time in three years since 2023.

The Korean economy struggled with high inflation and a strong dollar in 2023, posting growth of just 1.6 percent.

Economists also warned that the combination of elevated inflation and a weak currency could undermine domestic demand.

In the survey, 40.4 percent identified domestic demand stagnation as the biggest risk facing the economy next year, followed by currency weakness at 35.6 percent.

Another 15.4 percent cited a potential pullback in corporate facility investment as the main threat. Along with private consumption, capital investment is a key pillar of domestic demand, and economists cautioned that persistently high interest rates could further discourage spending.

Concerns were also raised that high inflation and a strong dollar would worsen polarization of assets and income.

Under such conditions, the central bank would have limited room to cut interest rates, and prolonged tight monetary conditions could place a heavier burden on low-income households.

Several economists urged the government to take a more active role in addressing these challenges.

Nah Won-jun, a professor of economics at Kyungpook National University, said policymakers should prioritize tackling inequality rather than focusing on stock market stimulus.

“Structural reforms are needed to raise productivity and strengthen innovation capacity,” said Hur Jung, a professor of economics at Sogang University.