Bo-eun leads the digital content team. She has covered foreign affairs, North Korea, tech, economy and gender issues at The Korea Times. She did a short stint at the South China Morning Post in Hong Kong, where she obtained a new perspective on news production and life. Small sources of joy for her are lounging in the sun, having a good latte and swimming.
Think tanks rush to cut Korea's growth outlook
gettyimagesbank
By Kim Bo-eun
BOK under growing pressure to slash key rates
By Kim Bo-eun
Both domestic and international think tanks are lowering their 2019 growth forecast for the local economy as it twin engines of growth ― exports and domestic demand ― are simultaneously losing steam.
On Thursday, Nomura Securities lowered its GDP forecast for Korea this year to 1.8 percent from 2.4 percent, which is far below the Bank of Korea's 2.5 percent.
In a research note, the brokerage said the Korean economy unexpectedly contracted in the first quarter from the last quarter of 2018 after facilities investment fell 10.8 percent. It believes this is a signal that sluggish exports are negatively affecting the domestic economy.
It also said that the government's supplementary budget "will be insufficient to fully offset intensifying economic headwinds," citing a housing market correction and technology sector downturn.
Nomura's downbeat report came immediately after the BOK reported Thursday that the economy contracted 0.3 percent in the first quarter.
This is the lowest growth in a decade since the fourth quarter of 2008, when the country's economy shrank 3.3 percent quarter-on-quarter. The central bank cited decreased capital investment and exports as factors behind the fall.
Earlier last week, the LG Economic Research Institute lowered its growth estimate from 2.5 percent to 2.3 percent, citing slowing exports and weak consumption.
"The economy is showing its fastest downward trend since the global financial crisis, as the effect of the slowing economy shows an amplified effect on the semiconductor market,” the institute said in the report.
"Despite the government's expansionary policy, South Korea's GDP growth rate has been forecast to be as low as 2.3 percent, and it appears a recovery will be difficult next year."
Last month, Moody's also readjusted its growth forecast from 2.3 percent to 2.1 percent.
Economists view the downward adjustments as being realistic.
"Korea's GDP growth rate will remain at 1.8 percent if current circumstances continue," Sung Tae-yoon, an economist at Yonsei University, said.
"However, since the government will take expansionary measures the growth rate is expected to be higher," he said.
The government submitted a 6.7 trillion won ($5.8 billion) supplementary budget bill to the National Assembly for approval last week.
Yet there is a prevailing view that the extra spending will be insufficient in providing the impetus needed for growth.
Sung noted "there is still a possibility that the growth rate will be below 2 percent, and that it will not be easy to reach the BOK's 2.5 percent estimate."
The BOK had put forth a GDP growth estimate of 2.6 to 2.7 percent earlier this year, but cut the forecast to 2.5 percent this month, citing slowing exports and slumping private investment.
Amid the worsening economic data, the BOK has come under greater pressure to lower interest rates.
Sung said "current circumstances make a rate cut possible."
The Nomura report confirmed the think tank's view that the BOK will cut the policy rate in the fourth quarter this year and the first quarter of 2020, to 1.5 percent and 1.25 percent, respectively.