Growth Forecast
The Bank of Korea (BOK) had a monetary policy committee meeting on October 3 to set a benchmark interest rate and to release a revised economic growth outlook.
The market is giving more attention to the growth rate outlook more closely than the key rate, watching whether or not the central bank will lower the growth forecast from the previous 4.0 percent announced in July this year.
Industry experts forecast the central bank would keep the key rate unchanged, while adjusting down next year’s growth rate to 3.8 to 3.9 percent, down 0.1 to 0.2 percentage points. The forecast primarily seems to be based on the IMF’s prediction that a slower global growth for next year would have a negative impact on the Korean economy, which heavily relies on exports.
The IMF is expected to revise Korea’s growth outlook down for next year from its initial forecast of 3.9 percent. Asia Development Bank (ADB) has recently cut the growth outlook from 3.7 percent to 3.5 percent.
Meanwhile, Goldman Sachs has also recently adjusted its forecast of Korea’s GDP growth rate for this year upward to 2.9 percent from the previous 2.7 percent. It also moved up its next year’s growth outlook to 3.7 percent from the current 3.5 percent. The US investment bank adjusted also the won-dollar exchange rates three months ahead downward to 1,080 won per dollar from 1,100 won. It maintained, however, the previous level of 1,100 won per dollar for its six and 12-month forecasts. An analyst of Goldman Sachs said that the adjustment was due to the fact that Korea’s export outlook is improving, while investment is picking up steam. The analyst added that gradual revivals of the economies of the United States and the EU since May have contributed to the increase in Korea’s exports, raising the figure of the GDP growth rate.
Anyway, a downward adjustment of growth outlook of 0.1 percentage points or more could pose questions to the government’s tax revenue estimate based on 3.9 percent growth next year. The debate over the gap between the estimated revenues and actual revenues will arise, as the government is likely to forecast the economy would grow at its target pace.