World Economy

Further Cut in S. Korea Growth Forecast

Further Cut in S. Korea Growth ForecastFurther Cut in S. Korea Growth Forecast

Korea’s leading state think-tank will likely revise down the country’s growth estimate to below 3% for the year, following earlier downgrades by local and overseas institutions, a source said Sunday.

The Korea Development Institute plans to unveil a revised version of its gross domestic product growth forecast for 2015 and 2016 on Nov. 23, according to the source who asked not to be named, Yonhap reported.

In its earlier outlook released on May 20, the KDI said Asia’s fourth-largest economy will likely grow 3% this year and 3.1% next year.

However, the KDI is expected to reset the rate at below the 3% level for 2015, due to a sharp drop in domestic consumption stemming from the spread of the Middle East Respiratory Syndrome after June.

“The MERS impact will be reflected in the forecast revision,” said the source. “(The South Korean economy) underperformed in the second quarter.”

Last month, the International Monetary Fund revised down the growth forecast of the 2015 South Korean economy to 2.7% from 3.1% predicted in May.

The IMF-projected growth rate for 2016 fell to 3.2% from 3.5% over the five-month period.

Local private think tanks also reported lower growth forecasts for the year, with LG Economic Research Institute suggesting a 2.6% gain and Hyundai Research Institute presenting 2.5% growth.

Consensus Economics, an international survey of economic forecasts by global investment banks and institutions, predicted that South Korea will expand an average 2.5% this year.

For next year, Consensus Economics estimated an average 2.9% expansion, while the KDI is expected to follow suit, according to the source.

Meanwhile, a recent report said, South Korea’s economy picked up pace in the third quarter, helped by rising consumption and construction activity, but weak exports ensured it remained on course for a full-year slowdown worse than official targets.

Gross domestic product rose 1.2% quarter on quarter—slightly higher than market forecasts, the Bank of Korea reported.

That was the strongest quarterly growth since 2010, reflecting a rebound from the second quarter in which it slumped to 0.3%, with consumer spending and tourism depressed by concerns about an outbreak of Middle East Respiratory Syndrome.

Private consumption rose 1.1% in the third quarter, buoyed by tax breaks on cars and a nationwide government-organized sale event as well as an increase in the number of workers.

A further boost came from rising government spending as part of a fiscal stimulus package, as well as a 4.5% quarterly rise in construction investment spurred by a strong property market.

House prices have risen for 25 consecutive months, according to Kookmin Bank.