Will BOK trim growth outlook again?
Container ships are docked to load outbound shipments at Busan Port in Busan, Tuesday. Yonhap
The Bank of Korea (BOK) is attracting attention for its 2024 economic growth forecast for Korea next week amid increasing economic uncertainties both domestically and internationally.
The bank will release an updated economic growth estimate report on Feb. 22. The BOK revised down the outlook three times in a row in 2023 — from 2.4 percent in February to 2.3 percent in May, 2.2 percent in August and 2.1 percent in November.
Since then, global oil prices have remained vulnerable to geopolitical risks in the Middle East, such as the Israel-Hamas war and the Red Sea crisis, in addition to the protracted war in Ukraine.
The weaker-than-expected slowdown in U.S. consumer inflation is prompting speculation that the Federal Reserve's rate cuts may only begin in June under extreme circumstances.
China, a major trading partner of Korea, is experiencing downward pressure on its economy. The worsening slide in its property market, coupled with the impact of the trade war with the U.S., are significantly affecting China's economic situation.
“These factors have the potential to influence currency rates and the prices of imported raw materials, thereby weakening Korea's exports, which had begun to recover after months of downturn,” Sejong University business administration professor Kim Dae-jong said.
Kim noted that the won-dollar exchange rate eased to close at 1,290 won per dollar on the last trading day of 2023, on the back of the Fed’s shift to a dovish monetary policy.
However, the exchange rate has rebounded to the 1,300 won level, which is a psychological threshold, as hopes for a U.S. benchmark interest rate cut starting in March have diminished due to persistent U.S. inflation.
According to Korea National Oil Corp.’s Opinet website, crude oil benchmarks – Dubai, Brent, and West Texas Intermediate (WTI) – surpassed $80 per barrel at the end of January, although they recently retreated to the upper $70 range. Market watchers speculate that there is a possibility of further price increases.
Among the crude oil benchmarks, Dubai and Brent each retreated to the upper $70 range per barrel in January, but surpassed $80 a barrel this month.
“Taking such circumstances into account, I’d say the BOK possibly can slash the 2024 economic growth outlook once again,” Kim said.
Cho Yong-goo, an analyst at Shinyoung Securities, projected the BOK to keep the growth estimate unchanged at 2.1 percent, although he said the aforementioned economic uncertainties collectively can worsen the high cost of living and further weaken private spending.
Speaking on condition of anonymity, a LG Economic Research Institute economist said the possibility of the BOK lowering its growth revision is “anybody’s guess.”
The economist pointed out that the International Monetary Fund (IMF) revised up its growth projection for Korea to 2.3 percent from 2.2 percent, whereas the Organization for Economic Cooperation and Development (OECD) revised down the outlook to 2.2 percent from 2.3 percent.
Meanwhile, Korea fell behind Japan in terms of the economic growth rate last year. According to data released by the Japanese government on Thursday, Japan's real gross domestic product (GDP) grew 1.9 percent last year, which is 0.5 percentage point higher than Korea's rate of economic expansion announced by the BOK last month. It is the first time in 25 years that Korea fell behind Japan in terms of the economic growth rate. The last time Korea fell behind Japan was in 1998 during the height of the Asian financial crisis.