With ongoing uncertainty, economic growth could fall to just over 2%

Posted on : 2016-12-19 17:25 KST Modified on : 2019-10-19 20:29 KST
Across the board, estimates of South Korea’s 2017 economic growth are being drawn down
South Korea’s economic growth rate
South Korea’s economic growth rate

As projections for South Korea’s economic growth rate next year continue to fall, analysts are losing confidence that the rate will stay above 2%. After the Korea Development Institute (KDI) warned that prolonged political uncertainty in South Korea could lower next year’s growth rate to just above 2%, the Korea Economic Research Institute (KERI), which is affiliated with the Federation of Korean Industries (FKI), revised its projection for next year’s growth rate to 2.1%.

The KERI announced on Dec. 18 that it was lowering its projection for next year’s growth rate from the current level of 2.2% to 2.1%. This 0.1 percentage point drop came three months after the institute made its 2.2% projection in September.

The main reason the KERI lowered its projection is because of growing uncertainty in the global economy as trade slows and protectionism surges after the election of Donald Trump as US president. The KERI also believes that extremist political parties could make significant gains in the French presidential election in Apr. 2017 and in the German parliamentary elections in Sep. 2017.

Domestically, the KERI believes that the South Korean government’s ability to stimulate the economy is weakening. With household debt above 130 trillion won (US$109.71 billion), South Korean companies are concerned that the US decision to raise interest rates is putting more pressure on South Korea to do the same.

In recent days, there appears to be a trend to lower projections for growth rate next year. The OECD reduced its forecast from 3% to 2.6% on Nov. 28, and the KDI adjusted its forecast from 2.7% down to 2.4% on Dec. 7. The KDI also warned that the growth rate next year could fall to the low 2% range if uncertainty drags on in domestic politics.

This means that analysts cannot even be sure of 2% growth, let alone 3%. Among current growth rate predictions, the government’s is the highest at 3%, followed by the OECD (2.6%), the KDI (2.4%) and the KERI (2.1%).

By Kwack Jung-soo, business correspondent

Please direct questions or comments to [english@hani.co.kr]

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