Central bank pessimistic about economic outlook
The Bank of Korea (BOK) shaved this year’s economic growth forecast to 2.2 percent on July 18, three months after the central bank lowered the projection by 10 basis points to 2.5 percent.
It marks the first time in four years for the BOK to cut the country’s growth outlook by 30 basis points. The market consensus was that the new forecast would be 2.3 percent.
Asia’s fourth-largest economy contracted 0.4 percent in the first quarter of this year, the worst performance since the global financial crisis in the late 2000s.
Even if Korea achieves 2.2 percent this year, it is the lowest in a decade.
“With respect to future domestic economic growth, the board expects that the adjustment in construction investment will continue and exports and facilities investment will recover later than originally expected, although consumption will continue to grow,” the BOK said.
“Gross domestic product (GDP) is forecast to grow at the lower-2% level this year, below the April forecast of 2.5%.”
In line with the pessimistic outlook, the BOK also slashed the benchmark rate a quarter percentage point to 1.5 percent.
The measure is aimed at supporting the economic recovery as the growth and inflation trends were weaker than initially thought, BOK Gov. Lee Ju-yeol noted.
Japan’s recent maneuver also seems to affect the BOK.
Early this month, Tokyo announced strict restrictions on exports of key high-tech materials, which Korean electronics giants use to make semiconductors and smartphones.
The measure, which came due to a growing dispute between the two neighbors over wartime forced labor issues, is feared to negatively affect the Korean economy.
In particular, its two biggest companies of Samsung Electronics and SK hynix struggle to deal with the step. The former is the world’s largest maker of memory chips while the latter is a runner-up.
Korea vows to strike back while Japan threatens to come up with more retaliations. This prompts observers to worry about a tit-for-tat fight, a lose-lose scenario for both countries.
GDP shocks: Korean economy contracts