South Korea slashes 2017 GDP forecast, makes plans to shore up consumption

A group of women pose for photos with a giant bear at a Line store in the popular Myeongdong shopping district of Seoul.
A group of women pose for photos with a giant bear at a Line store in the popular Myeongdong shopping district of Seoul. PHOTO: AFP

SEJONG, SOUTH KOREA (REUTERS) - South Korea lowered its growth outlook for next year on Thursday (Dec 29) 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 was 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 the consumer confidence falling to a 7½-year low earlier this week.

As a result, the government now sees economic growth of 2.6 per cent in 2017, 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.

"It's a relatively bleak view given that the government usually takes in the upside of policy efforts to boost growth,"said Moon Jung Hui, an economist at 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 on Thursday, Prime Minister Hwang Kyo Ahn stressed the importance of restoring stable conditions so households and businesses could go back to their normal spending patterns.

In its policy direction for 2017, the BOK 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 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.

Also on Thursday, data showed industrial output in November jumped at its fastest pace in over seven years, but analysts doubted the gain would be sustained.

In a separate statement analysing November's output, the finance ministry downplayed the rebound and said recovery momentum could decline due to factors such as faster policy tightening by the US Federal Reserve in 2017. "This is just a temporary rebound and is unlikely to be the prelude to an actual recovery," said Lee Sang Jae, chief economist at Eugene Investment & Securities.

The finance ministry said if momentum doesn't pick up it may press the case for a supplementary budget next year.