S&P Cuts Growth Outlook for S. Korea’s Economy to 2 Percent

SEJONG, Jul. 10 (Korea Bizwire) — Global rating agency Standard & Poor’s has sharply slashed its growth forecast for South Korea’s economy this year to 2 percent due to rising uncertainty about the global trade outlook and weaker consumption.

The latest estimate represented a sharp downward revision from its previous forecast of 2.4 percent in April.

S&P said high inventories, particularly in the electronics sector, and rising uncertainty about the global trade outlook will continue to weigh down production and private investment.

“We expect growth to slow to 2 percent in 2019, before base effects in the electronics sector help push the headline figure back to 2.6 percent in 2020,” S&P said in the latest Asia Pacific Quarterly published on Tuesday.

The downward revision came a week after the South Korean government cut its economic growth outlook this year to between 2.4 percent and 2.5 percent from its previous forecast of between 2.6 percent and 2.7 percent in December.

On Wednesday, Hong Nam-ki, the minister of economy and finance, said in a parliamentary session that economic growth could recover in the second quarter as he reiterated efforts to boost exports.

The South Korean economy, Asia’s fourth-largest, unexpectedly contracted 0.4 percent in the first quarter of the year from three months earlier, marking the worst performance in a decade.

Hong also said it’s difficult to predict what impact Japan’s restrictions on exports of key materials could have on South Korea’s economic growth.

He said South Korean companies could have extreme difficulties if the Japanese curbs continue.

Last week, Japan began to tighten regulations on exports to South Korea of key materials essential to semiconductors and display panels in apparent retaliation against South Korea over its handling of the wartime forced labor issue.

Hong said South Korean companies have several months worth of semiconductors in their inventories.

In June, another global credit appraiser, Fitch Ratings, cut its growth outlook for South Korea’s economy this year to 2 percent, citing weaker underlying momentum.

S&P also said South Korea’s central bank could cut interest rates by 0.25 percent later this year as inflation remains below 1 percent, far below its target.

In June, Bank of Korea Gov. Lee Ju-yeol stressed the need for “appropriate measures” to deal with changes in economic conditions, a comment widely seen as hinting at a potential rate cut.

In May, the central bank left the policy rate unchanged at 1.75 percent. The bank is set to decide the key rate and announce its growth outlook for the country’s economy next Thursday.

(Yonhap)