Illustration: Chen Xia/GT

The recent announcement by South Korea's central bank of a further interest rate cut next year is necessary for the nation's real economy, especially for its export-driven manufacturing sector. In a world fraught with growing uncertainties, this decision to ease monetary policy further provides a much-needed cushion for businesses navigating turbulent times. 

For South Korea's manufacturing giants, particularly those in capital-intensive industries such as semiconductors, automobiles, and electronics, lower interest rates will help lower financing costs, providing businesses with greater flexibility to invest in innovation and expansion. Moreover, if the South Korean won depreciates moderately as a result of rate reduction, it will make South Korean products more affordable in global markets. This, in turn, will benefit export-dependent industries, enhancing their competitiveness in an increasingly challenging global economy.

Looking ahead to 2025, many economists forecast that the global economy will continue to be marked by significant uncertainties. In such an unpredictable environment, the decision by South Korea's central bank to further reduce interest rates is both timely and necessary to ensure the stability and continued growth of the country's key industries. According to Yonhap News Agency, the central bank said it will strengthen its early warning function to avoid any volatility in the financial markets amid uncertainties involving geopolitical risks and economic policies in the new US presidency under Donald Trump. 

South Korea's economy, which is heavily reliant on exports, is somewhat vulnerable to global trade dynamics. A rise in protectionism in certain Western economies could amplify this vulnerability. However, such a scenario does not necessarily cast a bleak shadow over the future. The recent announcement by South Korea's central bank that it will further reduce interest rates in the coming year suggests there is still room for policy adjustments to foster growth and cushion external pressures. With inflation remaining relatively tame, as evidenced by a modest 1.5 percent increase in the CPI in November, the central bank is well-positioned to deploy further stimulus measures. Moreover, the easing of interest rates by the US has alleviated concerns about capital outflows from Asian economies, including South Korea. Taken together, these factors create a more optimistic outlook, where well-timed interest rate cuts could ease economic challenges and provide much-needed support for South Korea's domestic economy.

Beyond South Korea, some Southeast Asian nations have also taken steps to ease their monetary policies. For instance, Indonesia lowered its benchmark interest rate by 25 basis points to 6 percent in September. Each country faces unique internal and external economic conditions. Therefore, the reasons driving interest rate cuts in different economies are often distinct. Despite these differences, one common thread is the potential for such measures to stimulate investment and production, particularly in the manufacturing sector, which remains a cornerstone of Asia's economic engine. These policies are likely to strengthen Asia's supply chains, enhance regional economic integration, and bolster the resilience of Asian industries. Viewed in this light, these developments are conducive to the long-term growth of the Asian economy.

The restructuring of industrial supply chains across Asia has gained momentum in response to changing economic conditions and shifting global demands. A key question now is how Asian manufacturing industries can capitalize on a potential low-interest-rate environment to accelerate restructuring, improve efficiency, and foster growth. Rather than pursuing "decoupling," strengthening cooperation within regional supply chains may offer a more promising path. By deepening integration and collaboration, Asian economies could help their manufacturing sectors adapt more effectively and become more resilient. This approach will be especially relevant in 2025, when some Asian economies may still be in a rate-cutting cycle, creating a window of opportunity for further growth and transformation in the manufacturing sector.

South Korea is an integral part of Asia's manufacturing supply chain, particularly in export-driven industries such as semiconductors. Looking ahead to 2025, a factor for its economic performance will be whether the country can leverage potential interest rate reductions to boost exports. For South Korea's manufacturing sector, this opportunity could be important in sustaining economic momentum and enhancing global competitiveness.

Of course, potential rate cuts in South Korea in 2025 could also pose certain risks. Given the uncertainty surrounding US Federal Reserve policies, there are concerns that rapid rate cuts could have negative effects on South Korea's foreign exchange and capital markets, as well as its real estate sector. Therefore, while rate cuts may present opportunities for economic stimulation, effectively managing their potential negative impacts will be equally important.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn