Koreas | BOK lowers South Korean growth estimate to 2.8% from 3%

BOK lowers South Korean growth estimate to 2.8% from 3%

April 19, 2016 2:00 PM (UTC+8)

 

After a disappointing first quarter, the Korean central bank on Tuesday scaled back its economic growth estimate for 2016 to 2.8% from its January estimate of 3%. It also blamed growing uncertainty in the global markets.

“The reason we lowered our annual growth outlook is because first-quarter performance failed to reach our expectations in January, and because of the revision in trade and global market growth due to various reasons including falling crude prices,” Bank of Korea (BOK) Gov. Lee Ju-yeol said.

“The uncertainties significantly increased outside of Korea,” he continued, “such as the sharper deceleration of Chinese economic growth from what we anticipated; the sharp drop in crude prices; and uncertainties from the Fed’s monetary policy direction.”

Seoul skyline
Seoul skyline

Analysts questioned whether Korea’s Ministry of Strategy and Finance would cut its forecast for growth of 3.1%.

“We haven’t changed our view that the economy started seeing a mild recovery since the second quarter,” Governor Lee said Tuesday. “Facility investments, which struggled in the first two months of this year, have rebounded, and exiting the first quarter, the Korean economy will start showing mild improvement.”

The governor also cited uncertainties in the global market.

“The Fed’s interest rate hikes are moving up at a gradual pace, while concerns over a sharp fall in growth in China have eased and crude prices are starting to rebound,” Lee said.

Some private institutions see a different picture.

Just last week, the International Monetary Fund slashed its outlook for the year from to 2.7% from 3.2%, citing slowing growth in China. The Korea Institute of Finance, Korea Economic Research Institute and Asian Development Bank all estimate Korea’s growth at 2.6 percent, and the  Hyundai Research Institute recently cut its outlook to 2.5% from 2.8%.

Meanwhile, the lowest outlook comes from LG Economic Research Institute at just 2.4%. LG said that even though several economic indicators have been improving, an actual economic recovery is unlikely to take place this year.

“This is largely because exports, which are most important in deciding the country’s economic direction, will struggle as the global market’s demand for durable goods has been shrinking, while China and emerging markets — whose main businesses are exporting commodities — have been cutting back on their facility investments,” Lee Geun-tae, a senior economist at LG Economic Research Institute told Korea JoongAng Daily. “This year, we expect negative growth in exports.”

Lee added that declining exports will eventually spill over to the domestic economy, as poor company performance will affect both the job market and the average employee’s income.

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