“Bank of Korea and KDI expected to lower growth outlook in wake of economic challenges”

Bank of Korea and KDI likely to lower growth outlook
Leave open the possibility of lowering the Ministry of Finance
There is also advice to “resolve finances”

“We expect the economic growth rate this year to be slightly lower than the original forecast (1.6%).” (Bank of Korea Governor Lee Chang-yong on the 3rd of this month)

“There is no certainty that there will be a rebound. There seems to be a high possibility of a downward revision of the growth rate forecast.”

As the growth rate forecast continues to decline, gray concerns about the report card accepted by the Korean economy this year are growing. However, as the head of fiscal and monetary policy has drawn a line on policy easing, the Korean economy’s rebound appears to be more dependent on the uncertain global economic recovery.

According to the government on the 7th, the Korea Development Institute (KDI on the 11th) and the Bank of Korea (on the 25th) will announce revised economic growth forecasts this month. KDI, which maintained its economic growth forecast (1.8%) for this year announced in November last year, is highly likely to revise down this time. The Bank of Korea, which presented 1.6% as its growth rate forecast for this year, which is 0.1 percentage point lower than the previous forecast (1.7%) in February, is also in the same situation.

This is because the burden on the Korean economy, such as the prolonged slump in exports, is growing. In February alone, KDI’s economic diagnosis of ‘deepening economic slowdown’ continued for two months in a row after deteriorating to ‘economic sluggishness’ in March. Earlier last month, KDI commented in its ‘April Economic Trends’ report that “the economic slump continues as exports, centering on the manufacturing industry, decline significantly.”

The government, which is about to announce the ‘economic policy direction for the second half’ next month, also left open the possibility of lowering its growth rate forecast from the current level (1.6%). Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho, who said, “I have no intention of lowering the economic forecast right away” (on the 11th of last month), took a step back on the 4th of this month, saying, “I will look at it again after comprehensively judging the economic data and forecasts of various institutions.” The International Monetary Fund (IMF) lowered its forecast for Korea’s growth rate for four consecutive times this year, lowering it to 1.5 percent last month. International credit rating agency Standard & Poor’s (S&P) has suggested 1.1%.

However, both heads of the economy draw a line when it comes to easing fiscal and monetary policies. Deputy Prime Minister Chu recently emphasized that “we are not reviewing the creation of an additional budget (supplementary budget).” Governor Lee Chang-yong dismissed market expectations, saying, “It is too early to cut interest rates within the year.” This is because of the continuing high prices.

Analysts say that the Korean economy has no choice but to rely more on the global economic recovery as the representative economic stimulus package has been tightly tied up. However, it is uncertain to expect an economic rebound as there are reefs everywhere, such as the reopening of economic activities in China, which has little ripple effect, international oil prices that are highly likely to fluctuate due to production cuts, and the continuing war in Ukraine.

Experts unanimously agreed that an active response should be considered as fears of an economic recession grow. Joo Won, head of the economic research department at Hyundai Research Institute, insisted, “As the economy is highly likely to improve next year, the task of maintaining fiscal soundness should be postponed until next year, and the government should release its finances now to stimulate the economy.” Seong Tae-yoon, a professor of economics at Yonsei University, also said, “Expand budget support where it is urgent due to spending restructuring, but given the economic recession, government bond issuance should be an option.”

Sejong = Byun Tae-seop reporter libertas@hankookilbo.com