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S.Korean gov’t lowers 2018 growth forecast on trade war concern
SEOUL, July 18, 2018 (BSS/Xinhua) – South Korea’s government on Wednesday
revised down its 2018 growth forecast for the economy on worry about the U.S.
protectionist moves that can trigger a global trade war.
Real gross domestic product (GDP), adjusted for inflation, was forecast to
grow 2.9 percent in 2018, down from the estimate of 3.0 percent expansion
announced six months earlier, according to the Ministry of Strategy and
Finance.
It was on par with the growth estimate of the Bank of Korea (BOK), which
also lowered its forecast by 0.1 percentage point earlier this month. The
South Korean economy expanded 3.1 percent last year.
The ministry picked the U.S. protectionist moves as the main reason for the
downward revision. Higher U.S. import tariffs would encourage other foreign
governments to retaliate against U.S. companies, boosting trade conflict and
reducing global trade.
The South Korean economy, which depends heavily on exports for growth, was
expected to be hit hard by the trade conflict, especially in the second half
of this year.
Exports were forecast to climb 5.3 percent this year, much lower than a
15.8 percent expansion last year.
Outlook for import growth was set at 11.2 percent amid rising crude oil
price. It was revised up from a 6.0 percent gain estimated six months
earlier.
Consumer price inflation was projected at 1.6 percent, down from the
previous forecast of 1.7 percent. Despite the expensive crude oil, farm goods
prices were predicted to stay low.
The ministry also selected higher crude oil price as a downside risk factor
to the economy as it can restrict growth of export and private consumption in
the second half.
Private consumption, the other main pillar for growth, was projected to
rise 2.7 percent this year, down from a 2.8 percent increase estimated six
months earlier.
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The downward revision reflected the worsening of labor market conditions.
The ministry slashed outlook for a year-over-year job increase on average to
320,000 from the previous estimate of 180,000.
The year-over-year job growth hovered around 100,000 for five months
through June amid the slowdown in services industry and the ongoing
restructuring of shipbuilders and shipping firms.
Facility investment was expected to grow 1.5 percent in 2018, sharply down
from the prior estimate of 3.3 percent. In 2017, facility investment jumped
14.6 percent.
Minister of Strategy and Finance Kim Dong-yeon, who doubles as deputy prime
minister for economic affairs, told a press briefing that the government will
maintain an expansionary fiscal spending stance amid the rising economic
uncertainties.
Trade conflicts between major economies and the normalization of global
monetary policy positions could worsen uncertainty, leading to slower growth
and weaker job growth, the deputy prime minister said.
To bolster consumer spending, the government will temporarily cut
consumption tax on new car purchase from the current 5 percent to 3.5 percent
by the end of this year.
The government will double the number of recipients of the earned income
tax credit (EITC) and triple the amount of tax refunds for low-income
households to expand the social safety net and boost spending among low-
income earners.
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