South Korea on Wednesday cut this year’s growth forecast to a seven-year low as the prolonged trade war between the US and China takes a toll on Asia’s fourth-largest economy.
The finance ministry now expects growth of between 2.4 per cent and 2.5 per cent this year, 0.2 percentage points lower than its previous forecast made in December, it said in its mid-year economic outlook. It was still higher than most economists’ estimates, which were as low as 1.4 per cent in some case.
The continued trade friction between the world’s two largest economies has slashed South Korea’s exports for the past seven months amid cooling demand for semiconductors, one of the country’s biggest export items.
“We’ve lowered the forecast as uncertainties over the trade war remain high amid the slowing global economy while a recovery in the semiconductor sector that accounts for 20 per cent of total exports is being delayed,” Lee Eog-won, director-general of the ministry’s economic policy bureau, told a briefing.
The new growth target would be the lowest since a 2.4 per cent expansion in 2012. The ministry forecast corporate investment to fall 4 per cent this year although consumer spending is expected to increase 2.4 per cent from last year. South Korea’s economy grew 2.7 per cent in 2018.
Inflation was forecast at 0.9 per cent this year, well below the Bank of Korea’s target range, strengthening the case for a rate cut by the central bank, which will convene a monetary policy board meeting on July 18 to set interest rates.
The ministry forecast the economy will grow 2.6 per cent next year, citing the expected global economic recovery. The government has urged parliament to approve a Won6.7tn ($5.74bn) extra budget aimed at propping up the economy.
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