FKI expects economy to grow 2.9 pct.

By Yoon Ja-young

The country’s economy will grow 2.9 percent this year amid sluggish exports and external risks, according to the Federation of Korean Industries Tuesday. The outlook for the second half of the year is pessimistic for electronics, automobiles and steel, the country’s main export items.

“The economy, which was already experiencing difficulties due to sluggish domestic consumption and exports, has been hit by the spread of Middle East Respiratory Syndrome (MERS),” said FKI Secretary General Park Chan-ho, at a seminar organized by the chaebol lobby group.

“With external risks such as the U.S. key interest rate hike, the Greek economy and the weak Japanese yen expected to dampen Korean exporters’ competitive edge and corporate sentiment, it is crucial to boost sentiment of all the economic players,” he added.

At the seminar, Kim Do-hoon, president of Korea Institute for Industrial Economics and Trade, expected the economy to have a 2.9 percent growth rate this year, citing sluggish exports as the main hurdle.

He explained that downside risks such as the U.S. interest rate hike, a further slowdown of the Chinese economy and Greece’s ongoing instability are gaining momentum.

“Extended weakening of the Japanese yen and low global oil prices will have a negative impact on Korea’s major exports,” he said, adding that the country should seek new growth engines.

The outlook is pessimistic for electronics, automobiles and steel for the second half of the year. Analysts explain that sluggish global demand combined with the strong Korean currency will work against Korean exporters.

It will be also difficult to have a notable recovery in the shipbuilding sector. While increasing orders, especially orders for liquefied natural gas (LNG) ships, is positive for shipbuilders, analysts cited sluggish demand for drilling ships as negatives for the industry.

The outlook for the second half is sunny for construction companies, however. The government’s deregulation of the housing market and increasing demand in real estate will help the construction industry. They are also expected to see increasing orders from Iran and Southeast Asia. The petrochemical sector meanwhile is expected to enjoy increasing demand amid the low global oil prices.

Park Hae-sik, director of the international finance division at the Korea Institute of Finance, said at the seminar that the global economy will mark 3.5 percent growth rate this year, continuing a growth rate of below 4 percent for four consecutive years.

“While the United States, eurozone and Japan will all see a recovery, emerging economies will be slowing down,” he said, adding that Japan’s exports may start to increase thanks to the weak Japanese yen.

While some fear Korea’s financial market will be in turmoil following a U.S. key rate hike expected in the second half of the year, he said there won’t be huge outflow of capital as both the EU and Japan will continue quantitative easing.