Global credit appraiser Fitch Ratings and global investment bank Goldman Sachs have substantially slashed their growth estimates of South Korea‘s economy this year to 2 percent and 2.1 percent, respectively. Goldman Sachs previously forecast that the Bank of Korea (BOK) would maintain the benchmark interest rate but changed its opinion and said there would be two rate cuts by next year.
Fitch has sharply cut South Korea’s gross domestic product (GDP) growth estimate for this year to 2 percent from its previous forecast of 2.5 percent made earlier this year, according to its “Global Economic Outlook” report released on June 18 (local time). It blamed the nation’s weaker-than-expected growth momentum for its downward revision, saying, “South Korea’s GDP in the first quarter of this year dramatically decreased 0.4 percent compared to the previous quarter, unexpectedly shrinking.”
Goldman Sachs has also revised its South Korean economic growth estimate for this year from 2.3 percent to 2.1 percent. It lowered the nation’s growth outlook for the second quarter of this year from 1.1 percent to 0.9 percent compared to the previous quarter. Goldman Sachs forecast a delay in the semiconductor market’s rebound after hitting the bottom. This would negatively affect the performance and exports of South Korea’s major semiconductor companies, slowing down the nation’s growth rate.
Accordingly, Goldman Sachs expected that the BOK would lower the benchmark rate by 0.25 percentage points twice until next year, one in the fourth quarter and the other in the middle of next year. It changed its previous outlook that the local central bank would freeze the rate this year and next year.
The two agencies had mixed opinions about the growth outlook for next year. Fitch said South Korea’s GDP growth would pick up pace to 2.6 percent in 2020, saying, “The economy’s growth should recover from the second half of the year, helped by the rollout of new fiscal measures to spur domestic demand and support job creation. The trade war will not expand anymore either.” On the other hand, Goldman Sachs has also revised its economic growth estimate for next year from 2.5 percent to 2.3 percent, saying, “South Korea is the second most exposed country to trade relations with China and the United States after Taiwan. It can be adversely affected more than other countries in the region.”