South Korea’s Public Debt Hits Record High Amid Slowing Revenue and Rising Spending

Economic

Summary:

As of May 2025, South Korea's national debt has reached a historic high of 1,217.8 trillion won, putting increasing pressure on the government’s fiscal policy. Despite a slight increase in revenue,...

South Korea’s National Debt Surpasses 1,200 Trillion Won for the First Time

According to the Ministry of Economy and Finance, South Korea’s central government debt stood at 1,217.8 trillion won (approximately USD 886.6 billion) in May 2025, marking the first time it has crossed the 1,200 trillion won threshold. This represents a monthly increase of 19.9 trillion won and a year-to-date surge of 61.7 trillion won.

This ballooning debt comes amid slowing revenue growth and aggressive government spending to stimulate the economy. The current debt level is now just 28.3 trillion won shy of the government’s full-year forecast of 1,246.1 trillion won, made after the first supplementary budget. With a second budget already passed in July, the finance ministry now expects the debt to reach 1,267.2 trillion won by year-end. Including local government debt, the total national debt is projected to hit 1,301.9 trillion won.

Revenue Growth Stalls While Expenditures Surge

From January to May, government revenue totaled 279.8 trillion won, up 21.6 trillion won from the same period in 2024. However, the collection rate slowed slightly, with only 42.9% of annual targets achieved, compared to 43.4% last year.

Meanwhile, government expenditure reached 315.3 trillion won, an increase of 4.9 trillion won year-on-year. Of the 241.1 trillion won allocated to fast-tracked projects, 139 trillion won (57.7%) was already disbursed by May, signaling a continued focus on economic stimulus.

Rising Fiscal Risk Amid Political and Economic Uncertainty

This record-high debt also coincides with heightened political tension, following the second arrest of former President Yoon Suk Yeol, and growing global concerns over public debt burdens. With the global interest rate cycle potentially reversing, South Korea may face higher borrowing costs, further pressuring fiscal sustainability.

The situation underscores the mounting risk that government spending, if left unchecked, could deepen the budget deficit and crowd out investment in long-term development.

A Delicate Balancing Act

With the debt already nearing its full-year forecast just five months into 2025, the government is walking a fine line. If revenue continues to slow and borrowing remains high, the risk of fiscal imbalance will grow, threatening economic stability.

In the second half of the year, policymakers must weigh their choices carefully whether to continue stimulating growth at the cost of ballooning debt or begin tightening fiscal policy amid uncertain global conditions. Either path will shape South Korea’s economic resilience in the years ahead.

Source: Chosun Daily

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Economic

UK Growth Stalls as May Data Disappoints Expectations

The UK economy shrank by 0.1% in May, failing to meet economists’ expectations of a modest rebound. According to the Office for National Statistics, the decline was led by a sharp 0.9% drop in manufacturing and a 0.6% contraction in construction activity. The figures follow a deeper 0.3% contraction in April, compounding concerns over the country’s economic trajectory and creating a challenging backdrop for newly appointed Finance Minister Rachel Reeves, who has prioritized boosting growth and narrowing the budget deficit.

Despite a temporary lift from a 0.7% expansion in Q1 largely credited to front-loaded economic activity ahead of Trump’s tariff wave the UK’s momentum appears to be fading. With trade policy volatility still looming and domestic uncertainty elevated, the second quarter is likely to show sluggish results. Deutsche Bank has already revised down its Q2 growth forecast to 0.1%, citing May’s disappointing data.

Trump Tariffs and Global Uncertainty Fuel Downward Pressure

The UK’s vulnerability to global shocks was laid bare earlier this year when President Trump introduced sweeping new tariffs, including a 10% reciprocal levy on UK goods, despite a balanced bilateral trade in goods. The broader financial impact was exacerbated by global market jitters and delayed investment decisions.

Although the UK was the first country to reach a trade agreement with the U.S. in the current negotiation cycle, the benefits of this deal have not yet materialized. Moreover, Trump’s threats of expanding tariffs to BRICS nations and trans-shipment routes including through Vietnam continue to spook manufacturers with global supply chains. Unresolved trade tensions between the U.S. and the EU further compound the external risks facing Britain’s export sector.

Domestically, the UK’s service-oriented surplus with the U.S. has remained intact, but it's insufficient to offset the drag from weakening production, rising costs, and low business confidence. The construction sector has also been hit by reduced private investment and higher material costs trends that could intensify if borrowing costs do not fall quickly enough.

Monetary Policy Outlook: Rate Cut on the Horizon?

Economic pressures are now nudging the Bank of England toward easing policy further. Despite headline inflation climbing back above 3%, many analysts, including Suren Thiru from the Institute of Chartered Accountants, believe an August rate cut is now highly likely. Markets are pricing in an 80% probability that the BOE will cut rates from 4.25%, continuing a gradual descent from the peak of 5.25% seen last year.

BOE Governor Andrew Bailey signaled earlier this month that interest rates are on a “downward path,” though he refrained from confirming the timing of any cuts. Compared to the European Central Bank, which has already slashed rates more aggressively, the BOE remains cautious but signs of contraction may force its hand sooner rather than later.

Outlook for Remainder of 2025: Fragile Optimism

While May’s data undeniably signals a setback, some economists caution against overreaction. Sanjay Raja of Deutsche Bank points to relatively healthy fundamentals: improved household and business sentiment, accessible credit, and encouraging PMI readings. However, he notes that a global manufacturing revival is critical for a sustained UK recovery and this remains the "big unknown."

The next key data point, the preliminary estimate of Q2 GDP on August 14, will be crucial in shaping both fiscal policy and public confidence. For now, the UK finds itself in a delicate position: buffered by trade diplomacy gains, yet exposed to external shocks and internal fragilities that could stall its post-pandemic recovery.

Source: CNBC

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Economic

Britain's economy contracted unexpectedly for a second month running in May, adding to worries at home for finance minister Rachel Reeves in an increasingly uncertain global environment, official data showed on Friday.

Gross domestic product declined by 0.1% after a 0.3% drop in April, the Office for National Statistics said.

Economists polled by Reuters had mostly forecast that gross domestic product would rise by 0.1% from April's level. While the services sector eked out a sliver of growth, declines in industrial output and construction dragged down overall output.

The reading poses downside risks to expectations that the economy grew in the second quarter of 2025, after a surge early in the year. It boosted expectations that the Bank of England will cut interest rates next month.

"The lack of momentum in the UK economy indicated by these sluggish figures means that an August interest rate cut currently looks inevitable, despite the recent spike in inflation," said Suren Thiru, economics director at accountancy body ICAEW.

Prime Minister Keir Starmer's Labour government has struggled to meaningfully improve growth in its first year in office.

Economists say it looks increasingly likely that Reeves will need to raise taxes again in her next budget - something she had hoped to avoid.

"While today's figures are disappointing, I am determined to kickstart economic growth and deliver on that promise," Reeves said of Friday's data.

Britain's economy expanded rapidly in the first quarter of 2025, outstripping growth in other countries in the Group of Seven advanced economies. In May the Bank of England revised up its full-year growth forecast to 1%.

However, much of the growth in early 2025 was likely to have been linked to the expiry of a tax break for some home purchases in April which boosted the sector before the deadline, and a rush by manufacturers to beat higher U.S. import tariffs.

The BoE has said it thinks the economy grew by about 0.25% in the second quarter of 2025. To achieve any growth for the quarter, the ONS said June's monthly data would need to show at least a flat reading, assuming no revisions to earlier months.

A month-on-month contraction of 0.4% or worse for June would herald a quarterly contraction.

"The second straight decline in monthly real GDP in May will increase concerns that the government's growth plan has been derailed by external and domestic shocks," said Raj Badiani, economics director, Europe, at S&P Global Market Intelligence.

Source: Reuters

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Economic

Exporters Race the Clock as U.S. Trade Truce Teeters

China’s foreign trade sector, a critical pillar of its economy, showed slight momentum in June, with export growth expected to reach 5.0% year-on-year, according to a Reuters poll of 23 economists. The uptick was driven largely by front-loading behavior, as exporters rushed to ship goods ahead of a potential collapse of the 90-day tariff truce with the United States, set to expire on August 12.

The month’s data also reflect import growth of 1.3%, a turnaround from the 3.4% decline in May, indicating modest recovery in domestic demand as late-2024 stimulus policies slowly take effect. While this signals partial healing in China’s consumption environment, the looming specter of U.S. trade policy remains the central market risk.

Truce Under Threat as Tariff Pressure Mounts

Though a fragile tariff pause was brokered in May 2025 talks in Geneva, it nearly unraveled after Washington accused Beijing of failing to ease rare earth export restrictions, a key element of the deal. A temporary reprieve came after June negotiations in London, but with little transparency and no firm implementation timeline, uncertainty continues to hamper confidence among traders and multinational firms.

President Donald Trump’s aggressive stance toward China remains unpredictable. He has floated 40% tariffs on goods routed through Vietnam — a crucial workaround hub for Chinese manufacturers — and warned of a blanket 10% duty on BRICS countries, which would further escalate tensions. These moves directly target China’s export strategy, which has increasingly relied on trans-shipment and diversification through ASEAN.

Analysts caution that such actions could encourage secondary trade containment, where Washington may pressure third-party countries to curb trade with China in exchange for tariff relief, compounding Beijing’s isolation.

Rising EU Tensions Add to Export Headwinds

China's challenges are not limited to the U.S. The European Union recently criticized Beijing for market flooding, unfair industrial policy, and support for Russia, just weeks ahead of a key EU-China summit. Although Beijing made concessions by exempting European cognac from proposed retaliatory duties, core disputes, particularly on electric vehicles, remain unresolved.

This fracturing of trade ties with both the U.S. and the EU raises broader questions about the sustainability of China’s export-led growth model. Economists at Nomura expect export growth to slow significantly in H2 2025, warning that what was once a growth driver may now become a drag on GDP.

Temporary Boost, Long-Term Fragility

With the June trade surplus forecast to hit $109 billion, up from $103.22 billion in May, short-term figures may suggest resilience. However, this resilience is front-loaded and unsustainable. The expiration of the truce in mid-August, coupled with increasingly targeted tariff threats, means exporters are operating on borrowed time.

Without structural reforms to stimulate domestic demand or pivot to new global trade partnerships, China’s economy may find itself cornered by geopolitical risk and deglobalization forces, leading to a steeper slowdown in the second half of 2025.

Source: Reuters

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Commodity

Rare Earth Rally: Lynas and Iluka Lead Surge After U.S.-Backed MP Materials Deal

Australian rare earth miners witnessed an explosive rally on Friday following a landmark agreement between U.S.-based MP Materials and the Pentagon to boost domestic rare earth magnet production. The Department of Defense will become MP Materials’ largest shareholder and establish a guaranteed floor price of $110 per kilogram for neodymium and praseodymium key rare earth elements representing nearly double the current price in China.

The news catalyzed a sharp uptick in investor sentiment toward the rare earth sector, particularly for Australian producers that dominate global supply outside of China. Lynas Rare Earths (LYC.AX) surged up to 20%, marking its strongest single-day performance since April 2020, and traded at A$9.67, its highest level since August 2022. Jefferies promptly upgraded Lynas from “underperform” to “buy,” raising its price target from A$6.40 to A$10.00, citing the upside risk from global price resets and potential government funding support for growth projects.

Iluka Resources (ILU.AX) saw an even more dramatic move, jumping 27% intraday, its largest gain on record, underscoring its strategic value amid global supply chain realignments. Meanwhile, Australian Rare Earths Ltd (AR3.AX) rose 7.14%, and lithium stocks such as Sayona Mining and Liontown Resources also posted modest gains, buoyed by the positive sentiment surrounding critical minerals.

Strategic Context: China’s Export Curbs Trigger Global Supply Recalibration

The U.S. government’s aggressive move to secure rare earths comes in response to escalating supply chain disruptions driven by China’s tightening export restrictions, which caused a 75% drop in rare earth magnet exports last month. These restrictions have already impacted global manufacturing, prompting some auto producers to suspend production lines due to material shortages.

Rare earth magnets are essential components for electric vehicles, wind turbines, military systems, and advanced electronics. The deal with MP Materials represents a pivotal shift in U.S. industrial policy to onshore production and reduce strategic dependence on China. By guaranteeing higher prices and direct state participation, the Pentagon aims to create a more secure and profitable environment for rare earth developers conditions that Australia, as a key ally and major producer, is well-positioned to exploit.

Investment Outlook: New Pricing Metrics Reshape Earnings and Growth Potential

The recalibration of rare earth pricing metrics significantly alters the short- to medium-term outlook for Australian producers. Analysts now forecast material upside in earnings for Lynas and other rare earth companies, as global benchmark prices realign away from Chinese-dominated market norms. Jefferies also noted that the strategic clarity and financial backing provided by Western governments may de-risk capital-intensive expansion projects, encouraging companies like Lynas and Iluka to accelerate production capacity.

As geopolitical tensions and resource nationalism reshape the critical minerals landscape, Australian rare earth miners are emerging as critical pillars of a new supply order, supported by rising demand, strategic U.S. partnerships, and investor optimism. The rare earth rally may be just the beginning of a larger structural revaluation for companies central to the global energy and technology transition.

Source: Reuters

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Economic

Stocks

Markets Mixed in Asia Amid Wall Street Gains and Renewed Trade Tensions

Asian stock markets entered Friday’s session on a cautious note, unable to fully mirror Wall Street’s bullish momentum due to growing geopolitical and trade uncertainty. The divergence in performance highlights a delicate investor mood, as optimism over strong U.S. earnings clashes with anxiety over global trade policies.

Chinese Equities Rebound, Rest of Asia HesitatesLeading the regional upswing, Hong Kong’s Hang Seng Index jumped 1.6% to 24,402.41, while Shanghai’s Composite Index rose 1.1% to 3,546.50, fueled by investor confidence in new domestic stimulus expectations and easing regulatory pressure in tech and property sectors. However, sentiment was far less robust in other regional markets.

In Japan, the Nikkei 225 dipped 0.1% to 39,662.19, pulling back from multi-decade highs amid yen volatility and nervousness surrounding U.S. trade actions. South Korea’s Kospi nudged up 0.1% to 3,185.15, while Australia’s ASX 200 slipped 0.1% to 8,583.40, reflecting weaker energy prices and lingering doubts about China’s consumer demand.

India’s Sensex remained nearly unchanged at 83,190.28, with investors awaiting domestic inflation data and potential RBI commentary on rate paths in the face of currency pressure.

Wall Street Drives Momentum but Tariff Overhang Lingers

Wall Street’s latest all-time highs, particularly in the S&P 500 and Nasdaq, were driven by strong corporate earnings and a resurgent airline sector. Delta Air Lines (DAL) soared nearly 12% after reporting Q2 results that beat expectations and offering an improved outlook for H2 2025. Its upbeat forecast lifted the entire airline industry, a key barometer for travel and consumer sentiment.

Tech stocks also continued to underpin broader gains. Nvidia (NVDA) added 0.75%, with its $4 trillion market valuation bolstering risk appetite across U.S. equities. Meanwhile, Bitcoin (BTC-USD) rallied past $113,000, extending its bull run on the back of institutional demand and anticipation of the upcoming U.S. Crypto Week starting July 14.

However, despite these positive signals, markets remain vulnerable. The sudden announcement from President Trump of 35% tariffs on Canadian imports, alongside broader tariff bands of 15% to 20%, rattled global investors. The policy shift sparked fresh fears of retaliatory trade moves and inflationary ripple effects.

Oil and Currency Markets React to Trade Jitters

In commodities, U.S. crude rose 44 cents to $67.01 per barrel, while Brent crude added 41 cents to $69.05, with prices stabilizing after a week of volatility linked to Chinese demand concerns and geopolitical risk in the Middle East.

Currency markets reflected risk-off tendencies. The U.S. dollar strengthened to 146.95 yen from 146.20, as demand for safe-haven assets rose. Meanwhile, the euro weakened to $1.1682 from $1.1704, pressured by relatively dovish ECB commentary and the dollar’s broad strength.

While corporate performance in the U.S. continues to impress, the macro landscape in Asia remains fragile. The juxtaposition of robust Wall Street gains with tentative Asian action underscores a market that is deeply reactive to political signals, particularly U.S. trade and fiscal decisions. If tariff fears persist and spill over into earnings expectations or consumer sentiment, the current bullish undertone may face serious headwinds in the weeks ahead.

Source: AP

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Economic

Strategic Shift: From Defense to Offensive Growth

MUFG, Japan's largest financial group, is entering an aggressive phase in its global strategy by scaling up its securitisation operations, especially in North America. According to Fumitaka Nakahama, head of the global corporate and investment banking business group, MUFG plans to increase its securitisation headcount from 80 to over 100 by early next fiscal year. This expansion marks a deliberate pivot from its previously cautious approach, signaling a broader ambition to boost its global influence in structured finance.

The bank, already active in securitised products tied to credit card receivables and auto loans, is seeking to diversify into non-traditional asset classes that offer higher margins and lower competition. Among the most promising: data centers, which are gaining momentum thanks to the rising global demand for generative AI infrastructure.

Data Centers and CLOs: MUFG’s Differentiation Play

Nakahama highlighted that the group is launching new securitised products such as collateralised loan obligations (CLOs) based on project finance assets, particularly for data centers. This focus reflects a unique strategy to merge the bank's strength in project finance where MUFG has dominated U.S. rankings for 15 consecutive years with structured credit instruments.

The pivot toward data centers is also designed to sidestep geopolitical risks. Nakahama noted that U.S. data centers aimed at domestic demand remain insulated from President Trump’s escalating tariff measures, giving MUFG a degree of protection from potential disruptions in global trade.

By blending traditional project finance with securitisation, MUFG aims to establish a niche that sets it apart from competitors crowding the more liquid and lower-margin asset classes. This approach is expected to lift the division's return on equity (ROE) to double digits over the medium to long term, a key target reflecting both operational discipline and investor appeal.

U.S. Debt Focus and Talent Investment

The expansion aligns with MUFG’s broader U.S. strategy, following its divestment of Union Bank’s retail division three years ago. That move was intended to sharpen focus on institutional lending and securitised products areas now seen as critical to growth under volatile macroeconomic conditions.

Investing in talent is central to this strategy. By increasing securitisation staff by around 25%, MUFG is ensuring it has the manpower to handle more complex deals, particularly those involving hybrid structures that combine infrastructure assets with capital markets funding.

Nakahama’s assertion that this is a “phase to go on the offensive” indicates the bank’s growing confidence in a climate where demand for secure, yield-generating products remains strong despite global financial uncertainties.

MUFG’s securitisation expansion in the U.S. is more than just a geographic push it’s a calculated repositioning toward resilient, technology-linked asset classes that align with global megatrends. By fusing project finance with structured credit innovation and strategically avoiding politically sensitive trade sectors, MUFG is positioning itself for sustained profitability and strategic leadership in an increasingly fragmented financial world.