Pessimistic Outlook
On October 13, the Bank of Korea maintained its economic growth forecast for this year at 2.7% and said that the South Korean economy is expected to grow by 2.8% next year, 0.1 percentage point lower than the previous forecast. Earlier, each of the LG Economic Research Institute and the Korea Economic Research Institute suggested a growth rate estimate of 2.2% and the figure is 2.5% for the Hyundai Research Institute, 2.6% for the Korea Institute of Finance and 2.7% for the Korea Development Institute.
The Ministry of Strategy & Finance is predicting that the South Korean economy will show a growth of 3.0% next year. Such optimistic views of the South Korean government and the central bank are based on a recovery in export, which cannot be guaranteed at this moment. These days, the Chinese economy is slowing down and trade protectionism is growing in the United States. International oil prices are rather unpredictable, too.
Besides, the forecast for the fourth quarter of this year, which significantly affects next year’s growth rate, may have to be adjusted downward in that Samsung Electronics’ decision to stop producing the Galaxy Note 7 was made on October 11 and has yet to be reflected in the 2.7% growth forecast. Hyundai Motor Company, the other one of the two largest enterprises representative of the country, is currently struggling with a decline in domestic sales and the ongoing strike as well. For the first three quarters of 2016, it sold 5,621,910 cars in total, down 1.8% from a year ago. If the pace continues, the company ends up posting a negative annual growth for the first time in 18 years.
Moreover, domestic consumption is likely to lose steam in the fourth quarter although it has led the growth of the economy based on the government’s various stimuli and the central bank’s low interest rate policy. According to experts, investment in the construction sector, which has benefitted from the interest rate policy and deregulation by the government, is highly likely to contract in 2017.