Chung Seok-woo and Lee Eun-joo
State-run think tank Korea Development Institute (KDI) on Monday slashed its outlook on the nation’s economic growth for this year to 2.7 percent and for next year to 2.6 percent from its previous forecasts, citing faltering investment from the country’s lethargic manufacturing and construction sectors.
The KDI announced that it has revised down its growth forecast for the Korean economy for 2018 to 2.7 percent from 2.9 percent estimated in May, and 2.6 percent from 2.7 percent for 2019.
The KDI’s growth outlook for this year is lower than the Ministry of Strategy and Finance’s projection of 2.9 percent, but in line with the Bank of Korea’s 2.7 percent forecast, the slowest pace since 2012 when the country’s economic growth stopped at 2.3 percent amid sluggish exports in the wake of Europe’s financial crisis.
Its outlook on the national economic growth for 2019 is even bleaker as its 2.6 percent projection comes below the government’s 2.8 percent and BOK’s 2.7 percent forecasts. The next year’s growth projection also indicates that the country’s economy would grow slower than its potential growth rate of between 2.7 percent and 2.8 percent, KDI said.
The KDI noted that the Korean economy is gradually losing steam from a downturn in the country’s manufacturing industry and the slowing recovery in the service sector amid a protracted slump in the construction sector.
“Nominal growth rate remains below the recent trend and the gross domestic income growth rate is fast receding,” the think tank said.
According to data released from the Statistics Korea last week, the seasonally adjusted mining and manufacturing output in Korea in September fell 2.5 percent on month, the biggest month-over-month loss since February last year. Against a year-ago period, it contracted 8.4 percent, the largest on-year loss since March 2009 amidst the spread of Wall Street-triggered global meltdown.
The fall was mainly led by the faltering automobile sector and slowing electronics exports. Output in the automobile sector sank 4.8 percent on month and 1.5 percent on year, and production in the electronics components sector plunged 7.8 percent on month.
According to the statistics office data, the country’s capital investment in September rose 2.9 percent after six-month-long slump on solid chip demand, while machineries order, which is closely linked to facilities investment, rose 1.9 percent on year.
The KDI projected capital investment to tumble 1.8 percent this year, down from a 3.5 percent growth outlook in May, and construction investment to drop 3.6 percent this year, accelerating its fall from a previous forecast of a 0.2 percent drop. Construction investment is forecast to decline 3.4 percent next year, it said. On top of depleting investment, the growth in consumer spending has also slowed, indicating that domestic demand would further soften.
The KDI also revised down its outlook on the number of newly added jobs for this year from mid-200,000 to 70,000 and for next year from early 200,000 to around 100,000.