As of last month, at least 10 global market observers predicted that South Korea’s gross domestic product growth would linger in the one per cent range this year. YONHAP NEWS AGENCY
In light of the trade conflict with Japan and other external risks, concerns are mounting that South Korea’s economic growth this year may fall below two per cent at worst, lower than the range of 2.2-2.5 per cent forecast by the government and the central bank.
The state-run think tank Korea Institute for International Economic Policy said in its recent report that Japan’s export restrictions would reduce Korea’s gross domestic product (GDP) by 0.27-0.44 percentage point.
The report was published on Thursday, a day prior to Tokyo’s decision to remove Seoul from its list of preferred trade partners, and therefore referred only to export curbs imposed early last month on three key materials crucial for semiconductor and display businesses.
“It is difficult to estimate the regulatory categories [of the imminent whitelist removal] and the impact it may have on the Korean economy and the global economy,” the report said.
Considering aggravated relations between Japan and Korea, the actual GDP for this year may face a steeper decline, market experts noted.
Local brokerages Eugene Investment & Securities and Hana Financial Investment said last week that trade friction with Tokyo could bring down Seoul’s growth rate by 0.6 percentage points and 0.8 percentage points, respectively.
If these pessimistic outlooks turn out to be true, South Korea’s year-on-year GDP growth would fall under the two per cent mark.
The Ministry of Economy and Finance early last month lowered its outlook for the country’s growth rate to the 2.4-2.5 per cent range, down 0.2 percentage points from its earlier suggestion.
The Bank of Korea (BoK) also cut its outlook to 2.2 per cent, down 0.3 per cent from its April figure.
Despite the adjustments, speculation has been rampant that Seoul’s economy may not even achieve these modest target figures this year, due to external risks, ranging from Sino-US trade tension to the struggling semiconductor industry and the Korea-Japan economic war.
As of last month, at least 10 global market observers predicted that South Korea’s GDP growth would linger in the one per cent range this year, which would mark the lowest year-on-year GDP growth since the 0.8 per cent observed in 2009.
While the Bank of America Merrill Lynch suggested 1.9 per cent, Standard Chartered anticipated one per cent.
“Though there are various uncertainties, it is indisputable that the 2.2 per cent forecast suggested by the BoK is facing considerable threat,” said Meritz Securities analyst Yoon Yeo-sam.
“Should the current Korea-Japan problem expand at any time, the growth rate will drop, possibly around the two per cent mark or lower.”
Eugene Investment & Securities analyst Shin Dong-soo also said GDP growth is likely to be “around two per cent at best” this year.
Though refraining from jumping to conclusions, the central bank has left room for additional monetary easing measures and prospect amendments later this year.
“If the economic conditions worsen, [a rate cut] will of course have to be considered,” BoK governor Lee Ju-yeol told reporters on Thursday, after the US Federal Reserve’s announcement of a policy rate cut.
The monetary chief’s remark was seen as a shift from his previously prudent stance, boosting speculations that GDP outlook may also be revised down.
Seoul’s central bank is due to announce its revised economic outlooks in November. THE KOREA HERALD
