Moody's Investors Service, a global credit rating agency, has forecast that the South Korean economy will grow 2.1 percent this year, down 0.2 percentage point from its estimate four months ago. It is the lowest figure among the projections from economic institutions at home and abroad. The main reasons for this are a slowdown in global trade and weaker investment.
In its Global Macro Outlook 2019-2020 report released on March 4, the rating agency projected the South Korean economy to grow 2.1 percent this year and 2.2 percent in 2020. It is the second downgrade in four months after Moody’s lowered this year’s estimate from 2.9 percent to 2.3 percent in November last year.
The South Korean government projects this year’s growth at 2.6 percent to 2.7 percent, while the OECD estimated it at 2.8 percent in September last year and the IMF at 2.6 percent in October last year. Moody’s said not only South Korea’s but also the global economic growth will slow down after reaching the peak last year. However, it maintained this year’s average growth rate projection of 10 advanced countries, including South Korea, among G20 member countries at 1.9 percent and raiseed next year’s figure by 0.1 percentage point to 1.5 percent.
Moody’s cited weakening of the investment cycle and deceleration in global trade as the main factors undermining South Korea’s economic momentum. It said, “A weaker demand for intermediate products from China, particularly semiconductors, had an adverse impact on exports as well as on the investment outlook.” In fact, South Korea’s exports decreased for three months in a row until last month, raising concerns over annual minus growth for the first time in three years. It also cited the sluggish manufacturing industry. Moody’s also said that industrial activities are slowing down across the globe and Germany, Japan and South Korea are the countries that show a remarkable drop in manufacturing productivity.
In the face of a grimmer growth projection, the South Korean government is seeking to boost exports. The Ministry of Trade, Industry and Energy announced on March 4 that the government would increase trade financing to 235 trillion won (US$208.52 billion). The figure has grown by 3 trillion won (US$2.66 billion) from the earlier plan and 15.3 trillion won (US$13.58 billion) from last year. It will also inject 352.80 billion won (US$313.04 million) in export marketing, up 5.8 percent from last year, with more than 60 percent of the total to be spent in the first half of the year. These measures are intended to prevent export companies from falling into a vicious circle of sluggish exports leading to financial difficulties, which in turn lead to reduced production and investment, and ultimately to a decrease in exports.