Yoon Ja-young is in charge of articles translated by a generative AI system and edited by The Korea Times. She is interested in improving the newspaper through AI.
KDI lowers economic growth outlook to 3%
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By Yoon Ja-young
Sluggish exports, weak demand weigh on economy
By Yoon Ja-young
The Korea Development Institute (KDI) has lowered its economic growth outlook for this year to 3 percent.
The state-run economic think tank’s previous estimate was 3.5 percent.
“Domestic consumption is recovering slowly, but exports are diminishing to hinder overall growth of the economy,” it said Wednesday.
KDI said the low interest rate, low global oil prices and the housing market recovery would help domestic consumption pick up.
But exports fell 8.1 percent in April from a year ago, marking minus growth for four consecutive months.
“The low oil prices, slowdown of the global economy and weakening competitive edge of exporters are worsening exports,” it said.
Experts agree that exports, which had been the sustaining pillar of the economy, were unlikely to pick up immediately. Kang Du-yong, a senior research fellow at the Korea Institute for Industrial Economics and Trade, said exports were turning sluggish due to structural problems, such as changes in global trade, a slowdown of Chinese growth and expansion of production overseas.
“The maturing global value chain and increasing protectionism in world trade seem to be behind the slowdown,” Kang said.
He said Korea’s exports to China, which focused on components and materials, were also hit by a slowdown and structural changes in the Chinese economy.
“The structural slowdown of exports implies that exports are likely to be slow for longer,” Kang said. “It would hamper the growth model that has depended on exports.”
He said the government should more aggressively boost domestic consumption.
The KDI warned that the economy might not attain 3 percent growth if the government failed in structural reform. The growth outlook is based on the government succeeding in the reform of things such as pensions and the labor market, and a further cut in the key interest rate in the latter half of the year.
“There are considerable downward risks,” the think tank said. “If the structural reform doesn’t succeed, or in case the monetary and fiscal policies don’t go smoothly, the economic growth rate is likely to go below 3 percent.”
The KDI said the central bank might have a problem with a further rate cut if the government failed to control snowballing household debt.
Externally, it cited the slowdown in China, delayed recovery in the euro zone and increasing uncertainties in the United States following a key rate hike as risk factors for the Korean economy.
Other private and public bodies also have been lowering their economic growth outlook for Korea. The central bank pulled it down to 3.1 percent from 3.4 percent, and the International Monetary Fund (IMF) slashed it to 3.1 percent from 3.3 percent. Nomura Securities suggested 2.5 percent as the growth number for Korea this year.