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South Korea Lowers Growth Outlook for 2016

South Korea Lowers Growth Outlook for 2016South Korea Lowers Growth Outlook for 2016

South Korea lowered its growth outlook for 2016 on Wednesday, citing headwinds for exports from China’s slowdown. The finance ministry said Asia’s fourth-largest economy will expand 3.1% next year. It previously forecast 3.3% growth.

The lower number would still be an improvement from 2015’s forecast growth of 2.7%. This year’s growth was much slower than the ministry’s forecast of 3.8%, due to slumping exports and a deadly respiratory syndrome that battered consumption, AP reported.

Next year, South Korea’s government plans to introduce policies to boost exports, consumption and birth rates. It will increase assistance to consumer products companies with big demand from China, such as cosmetics, food and baby products.

The country’s traditional export heavyweights, mainly shipbuilders, automakers and electronics companies, had a tough year in 2015.

To stimulate domestic spending, department stores and traditional markets nationwide will offer bargains every November, akin to Black Friday for American shoppers, Reuters said.

Meanwhile, the Bank of Korea said it was setting its new three-year inflation target at 2%, scrapping its current policy of using a targeted band for consumer prices, currently at 2.5 to 3.5%, to lift the economy from low inflation.

The ministry of strategy and finance separately cut its growth estimates for 2015 and 2016, with exports expected to remain stagnant while high household debt and an aging workforce undermine improvements in consumer spending.

It forecast the economy would grow by a real 3.1% next year, down from 3.3% estimated earlier and also revised this year’s growth to 2.7% from 3.1%.

“The takeaway from the government and central bank’s announcements today is that they will maintain their stance to keep the economy buoyed while continuing structural reform,” said Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities, who sees rates being cut early next year.

Before the current inflation target, South Korea used a midpoint of 3% within a range of 2 to 4%.

Economists at Australia and New Zealand Banking Group said the central bank was “serious about combating deflation,” while forecasting two interest rate cuts next year.

Financialtribune.com