06/18/2015
South Korea / GDP
South Korea’s official growth forecasts are set to be downgraded as the economy struggles with sluggish exports and the MERS outbreak.
Bank of Korea (BOK) Governor Lee Ju-yeol hinted on Wednesday that the central bank may downgrade its 2015 growth forecast, amid sluggish exports and the unexpected outbreak of Middle East Respiratory Syndrome (MERS). A forecast revision is likely to be made at the next BOK meeting on July 9.
The finance ministry, which is set to release its semi-annual economic outlook by the end of this month, is also likely to cut its growth forecast after factoring in the impact of MERS.
At present, this year’s growth projection from the central bank and the government are at 3.1% and 3.8%, respectively. These numbers will need to be lowered by at least 0.3 percentage points. It is estimated that the poorer-than-expected exports performance in the June quarter will cut GDP growth by 0.1 percentage points. June quarter consumption growth also now looks weaker than expected, on the back of the deterioration in public sentiment and the decline in inbound tourism after the MERS outbreak in end-May. It is not easy to gauge the full impact of MERS at this point. If the adverse impact on consumption and services activities is concentrated in June, we estimate that full-year GDP growth will be cut by 0.2 percentage points.
In response to the downside risks from MERS and the exports slowdown, the BOK cut rates by 25 basis points this month and the finance ministry is currently mulling a supplementary budget. The boosting impacts of fiscal and monetary easing are expected to lift the growth outlook for 2016, considering the time lag of policy implementation.
We will review our 2015-2016 growth forecasts in the coming weeks after watching the development of the MERS situation and analysing the government’s fiscal policy.
