Hana Institute forecasts GDP growth of 3.6%

As the first half of 2014 nears its end, many institutions are lowering their economic growth forecasts because they are worried about the slow crawl of consumption, but the government is firmly standing by its own growth target.

Hana Institute of Finance yesterday released its forecast for the country’s GDP growth this year of 3.6 percent.

The institute forecast 3.9 percent growth for the first half of the year, but lowered its figure for the latter half to 3.4 percent, citing slower momentum largely due to a downturn in the domestic market.

The institute’s forecast is much lower than that of the government (4.1 percent), the Bank of Korea (4.0 percent) and the Korea Development Institute (3.7 percent).

“As for private consumption, although we hope that the negative impact of the Sewol ferry disaster doesn’t last long, its growth could remain limited in the next six months,” said Kim Young-jun, a research fellow at Hana. “The Korean economy is expected to recover owing to improving conditions in the global economy, but it is still facing the challenges of low consumption and less growth in exports.”

Inflation is forecast to be below 2 percent due to the combination of sluggish consumption and the strong Korean won.

The institute predicted the country’s current account surplus would increase to about $81.5 billion, from $79.9 last year.

The institute also projected that the central bank would keep the benchmark interest rate unchanged for the time being and it called on the government to create plans to restructure household debt and encourage investment.

Hyun Oh-seok, finance minister and deputy prime minister for economy, said at the National Assembly yesterday that the economy would grow 4 percent this year, as the government had predicted, despite the slow consumption.

“There has been a significant shock to the domestic market due to the Sewol ferry accident, but the government forecasts that it is possible to obtain 4 percent growth if it manages the economy well,” Hyun said. “There is not a high possibility of a double-dip for the Korean economy.”

The minister called for emergency measures to revitalize consumption.

“Encouraging consumers to use [government-issued] Onnuri gift cards and using the national tourism fund could be immediate measures,” Hyun said. “The Ministry of Strategy and Finance also has a plan to front-load its budget to push for consumption.”

BY SONG SU-HYUN [ssh@joongang.co.kr]