Risks may challenge 2.7% forecast

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Risks may challenge 2.7% forecast

If the Park Geun-hye administration really wants to achieve its elevated 2.7 percent economic growth target for this year, it will have to weather three main risk factors, a report predicted.

They include: A slowdown in the Chinese economy, a possible slump in the local property market with the end of the country’s acquisition tax cut this month, and bad performance by the shipbuilding, steel and shipping industries.

The report by Samsung Securities was released just a day after the Ministry of Strategy and Finance announced a revised growth forecast of 2.7 percent for this year, up 0.4 percentage point from its previous prediction.

The ministry explained on Thursday that the 17.3 trillion won ($15.1 billion) supplementary budget passed by the National Assembly in late April has had a positive effect.

“There’s still remains the possibility that China, the world’s second-largest economy, may suffer a continued slowdown and this may hamper Korean exporters from recovery despite the U.S. economy showing signs of improvement,” said Lee Seung-hoon, an analyst at Samsung Securities.

Lee said government’s decision to phase out the acquisition tax cut this month is likely to make worse an already frozen property market.

“This is likely to further bring down real estate prices in metropolitan areas,” he added.

Bloomberg said a flailing domestic economy, tepid external demand and adverse pressures from a weaker Japanese yen are forcing Korean policy makers to react aggressively to stabilize growth.

“Monetary and fiscal stimulus implemented since the start of the year is likely to modestly support South Korea’s economy during the second half, while yen weakness may partially offset some benefits,” said Michael Mcdonough, an economist at Bloomberg.

Noting that Korea registered year-on-year GDP growth of only 1.5 percent last year, the slowest rate since 1998 (but excluding the post-Lehman Brothers period), Mcdonough said Asia’s fourth largest economy may also be hurt to an early tapering off of U.S. Federal Reserve asset purchases.

“Domestically, high levels of household debt - nearly 140 percent of GDP - restrain consumption and limit scope for the Bank of Korea to cut rates, following a 25 basis-point cut in May,” Mcdonough said, “Further deterioration in Korea’s manufacturing data and benign inflation expectations could trigger an additional cut over the months ahead.”

Meanwhile, Hyundai Securities said it has lowered the outlook for second quarter earnings of listed companies by 2.9 percent and for third quarter by 2.2 percent compared to forecasts it made in May.

“Due to escalating concern that developed nations including the U.S. will seek exit strategies for their ongoing stimulus plans coupled with China’s economy showing signs of slowing down, earnings estimates for Korea’s listed companies have turned downward this month,” said Lim Jong-pil, an analyst at Hyundai Securities.

Lim and other analysts said the positive momentum of listed companies’ combined earnings for the April to June period has been shattered as local brokerage firms have lowered their estimates for Q2 earnings of market cap No. 1 Samsung Electronics.

Hanwha Investment and Securities has lowered Samsung’s second-quarter operating profit estimates to 9.86 trillion won on Wednesday, down from its original forecast of 11.2 trillion won.

Hi Investment and Securities and Hyundai Securities have lowered the operating profit estimates to 10.3 trillion won and 10.2 trillion won this week.

“Earnings momentum is unlikely to lead to a stock market rebound as earnings estimates for listed companies continue to go down,” Lim said.

BY KIM MI-JU [mijukim@joongang.co.kr]

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