The Korea Economic Research Institute said in its report on Sep. 8 that the South Korean economy is forecast to grow 1.9 percent this year. Its estimate, adjusted downward from 2.2 percent, is much lower than the South Korean government’s 2.4 percent to 2.5 percent and the Bank of Korea’s 2.2 percent.
“South Korea’s exports, which led its economic growth last year, are likely to show a steep decline this year amid and a global economic downturn, the ongoing trade war between the United States and China, and mounting uncertainties such as Japan’s export curbs,” the institute explained, adding, “Besides, construction and facility investments remain sluggish as is the case with private consumption.”
That day, the Hyundai Research Institute mentioned similar reasons and revised its forecast from 2.5 percent to 2.1 percent. “The current economic recession is poised to last long with the private sector not responding to the government’s increased fiscal spending,” it said.
With the South Korean economy rapidly losing steam on the export and investment sides alike, a number of foreign investment banks already lowered their forecasts to less than 2 percent. For example, Morgan Stanley lowered its estimate from 2.2 percent to 1.8 percent in early July and Goldman Sachs revised its forecast from 2.2 percent to 1.9 percent in mid-August.
Under the circumstances, the Bank of Korea is expected to lower the benchmark rate from 1.5 percent to 1.25 percent at the Monetary Policy Committee meeting scheduled for Oct. 16. This has to do with the possibility that the ongoing trade disputes between South Korea and Japan are likely to continue to hang heavy on the South Korean economy and the Fed is likely to cut rates on Sep. 18.