'Korean economy to bottom out after 2020'

Traders work at the New York Stock Exchange in New York, the United States, Dec. 4. U.S. stocks plunged on that day, with all three major indices erasing more than 3 percent, amid worries over the inverted yield curve signaling a possible economic slowdown. / Xinhua-Yonhap

By Kim Jae-kyoung

South Korea is expected to face a further economic downturn due to multiple downside risks, such as the global slowdown and a possible hard landing of the Chinese economy, Hyundai Research Institute said, Sunday.

The private think tank said the Korean economy will bottom out after 2020.

“The Korean economy has been in the downward stage in the fourth quarter of 2018,” the institute said in a report.

“We believe that the economy reached its peak in May 2017 and has since been in downturn phase.”

According to the institute's analysis, the economy previously hit the bottom in March 2013 and climbed to the peak in May 2017.

“We expected the next bottoming-out point will come in 2019 but now it is more likely that it will take place after 2020,” it said.

The institute cited five downside risks for its bleak economic outlook.

Downside risks include global economic slowdown, China's sagging domestic demand, a prolonged slump in domestic construction industry, contraction in private spending and slowing exports.

“It is expected that the global economy will lose growth momentum in earnest in 2019 as a result of slowing U.S. economic growth,” it said.

“China is another key risky factor as a slowdown in China's domestic demand can cause a China risk for Korea, which relies heavily on the neighboring economy.”

It estimates that a 1 percentage point drop in China's GDP growth will cut Korea's exports growth by 1.6 percentage points and GDP growth by 0.5 percentage points.

Asia's fourth-largest economy grew 0.6 percent in the third quarter of 2018 from the previous quarter amid sluggish corporate investment and consumer spending.

It contracted 0.2 percent in the fourth quarter of 2017 but it grew 1.3 percent in the first quarter of this year but its growth rate slowed to 0.6 percent again in the second quarter.

The institute said that the government and the central bank should carry out economic policies in a more flexible manner.

“They need accommodative monetary policy by considering even a rate cut when necessary,” it said.

“Also, they should pursue expansionary fiscal policies and frontload 2019 budget in the first half.”