South Korea cuts GDP forecast, plans to boost consumption

Myeongdong shopping district in Seoul. South Korea has slashed its GDP forecast for next year due to slowing domestic demand and job growth. Uncertainties like the ongoing influence-peddling scandal have also affected consumption. The government may
Myeongdong shopping district in Seoul. South Korea has slashed its GDP forecast for next year due to slowing domestic demand and job growth. Uncertainties like the ongoing influence-peddling scandal have also affected consumption. The government may draft a supplementary budget if growth continues to slow to below 2.5 per cent.PHOTO: AGENCE FRANCE-PRESSE

SEJONG - South Korea lowered its growth outlook for next year as it saw weaker domestic demand and waning job growth holding back recovery in Asia's fourth-largest economy.

Corporate restructuring in the troubled shipping and shipbuilding sectors would hobble job growth next year, while consumption is expected to slow due to uncertainties inside and outside the country.

An ongoing influence-peddling scandal involving President Park Geun Hye and her close acquaintance Choi Soon Sil has seen lawmakers overwhelmingly vote for Ms Park's impeachment, which the Constitutional Court must soon decide whether to uphold.

The scandal and subsequent investigations have battered consumer and business confidence, with consumer confidence falling to a 71/2-year low earlier this week.

Thus, the government now forecasts 2.6 per cent economic growth next year, down from its earlier estimate of 3 per cent, and below the Bank of Korea's 2.8 per cent forecast, the Finance Ministry said yesterday.

"It's a relatively bleak view, given that the government usually takes in the upside of policy efforts to boost growth," said economist Moon Jung Hui from KB Investment & Securities. "While exports are likely to rebound next year, sluggish domestic demand will drag down overall growth as the construction industry is losing steam."

Earlier yesterday, Prime Minister Hwang Kyo Ahn stressed the importance of restoring stable conditions so households and businesses can resume normal spending patterns.

In its policy direction for next year, the Bank of Korea also said the economy faces downside risks from political uncertainty, adding that it plans to keep monetary conditions easy next year.

The declining trend in exports, however, may have bottomed out. The government projects exports will expand 2.9 per cent next year. December exports, due on Jan 1, are expected to rise for a second straight month.

Despite this, possible trade protectionist policies from the US and increased trade competition with Japan and China are risks to export recovery, the ministry said.

Finance Minister Yoo Il Ho said on Dec 22 the government may consider drafting a supplementary budget if growth next year looks likely to slow to below 2.5 per cent.

To shore up domestic demand, it plans to launch a promotional event for the upcoming Lunar New Year holiday in January and to develop new travel destinations and packages inside the country to attract foreign and local tourists.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 30, 2016, with the headline 'S. Korea cuts GDP forecast, plans to boost consumption'. Print Edition | Subscribe