[Editorial] The folly of the Bank of Korea’s vacillating growth predictions

Posted on : 2016-04-20 17:15 KST Modified on : 2016-04-20 17:15 KST
Bank of Korea growth predictions and actual growth rates
Bank of Korea growth predictions and actual growth rates

The Bank of Korea (BOK) lowered its economic growth rate forecast for this year from 3% to 2.8%. Explaining its rationale after a Monetary Policy Committee meeting on Apr. 19, it said that “improvement trends in consumption and facility investment have been weakening amid continued slack exports.”

There are numerous complex domestic and international factors at play in any economy, which makes it very difficult to offer accurate predictions. It makes a lot of sense to revise estimates when factors arise that could lead to fluctuations. But even then, there’s a right approach to accepting them. When estimates are changed often, and when there are big discrepancies between the estimates and the actual figures, trust ends up sacrificed. Incorrect economic forecasts lead to problems for the government in formulating economic policy, and for companies in forming business plans. The consequences of that usually end up being suffered by the public.

In April 2015, the BOK predicted a 2016 economic growth rate of 3.4%. Since then, the figure has been revised four times, losing 0.6 percentage points in total. In the case of 2015, the predicted growth rate at the beginning of the year was also 3.4%, while the final number was just 2.6%.

The fact that this keeps happening again and again raises questions over whether the BOK isn’t trying to keep the administration happy with rosy predictions. Indeed, the BOK came under fire in January when it kept its 2016 economic growth rate forecast at 3%, leading critics to accuse it of following the administration’s lead in giving an overly optimistic estimate.

Prior to that, the Ministry of Strategy and Finance came out late last year with a 3.1% prediction, after then Deputy Prime Minister for the Economy Choi Kyoung-hwan announced at a Saenuri Party workshop in August that he would “increase next year’s economic growth rate to 3% to help with the general election schedule.” BOK governor Lee Ju-yeol explained to reporters that there were “no considerations external to the economy” and that a 3% prediction “can’t be called optimistic.” Three months later, the bank lowered its estimate to under 3%.

The BOK‘s power as a central bank comes from its independence and expertise. But independence and expertise aren’t things someone can just choose to have. They’re values you have to keep working constantly to achieve.

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

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