Chung Seok-hwan and Lee Eun-joo
The Moody’s Investors Service has become the latest to deliver the bleakest outlook on the South Korean economy, predicting gross domestic product to slow to 2.1 percent this year from an estimated 2.7 percent in 2018 due to slowdown in the Chinese economy and other trading markets.
In its Global Macro Outlook 2019-2020 report, the ratings agency projected the Korean economic growth to stop at 2.1 percent this year and 2.2 percent in 2020, grimmer than its November estimates of 2.3 percent and 2.5 percent.
The Bank of Korea projects this year’s growth at 2.6 percent, while most other institutions estimate around 2.5 percent. The poorest growth numbers for the Korean economy over the last decade was 2.3 percent in 2012 and 0.7 percent in 2009.
Moody’s cited weakening of the investment cycle and deceleration in global trade as main causes for concern that have hurt economic momentum. It also pointed out subdued demand for intermediate products from China, particularly semiconductors, had “an adverse impact on exports as well as on the investment outlook.”
The ratings agency also blamed minimum wage hike for sluggish employment growth that has challenged small businesses to raise competitiveness. The Korean government raised minimum wage by 10.9 percent from 7,530 won ($6.67) per hour last year to 8,350 won this year after a 16.9 percent raise from 2017.
On the policy front, Moody’s Investors Service noted that the Korean government’s expansionary fiscal and monetary policy will “partially offset the impact of deteriorating domestic and external conditions.”
It predicted the Bank of Korea will sit out on rate move after a hike in November last year “at least until the end of 2019” in the face of poorer economic conditions. The agency projected Korea’s unemployment rate, already at crisis-hit levels of 3.8 percent, would further climb up to 4.1 percent this year and 4.2 percent in 2020.
The ratings agency, meanwhile, projected real GDP growth of G20 member countries to slow to 2.9 percent in 2019 and 2.8 percent in 2020, down from 3.2 percent in 2018, as central banks in developed and developing countries will “either pause or reverse policy tightening conditions” as global growth slows.