Economic think tank predicts slow growth

A state-run economic think tank has warned that the Korean economy is facing slower growth due to the global downturn.

The Korea Development Institute (KDI) said on Thursday there is a high possibility of sluggish performance in February, citing the latest economic indicators that are worse than expected.

“The constant falls in major economic indicators suggest the possibility of the Korean economy facing slower growth,” the report said.

It is the first time since January 2015 that the KDI expressed such concern about the economy. The state-run institution is usually positive in its outlook, saying the economy is gaining growth momentum gradually.

“The global slowdown centering on China, while oil prices are sliding at larger rates than many expected ... deal a blow to exports of most competitive items,” the report said.

In January, Korea saw an 18.5 percent plunge in its exports, the biggest drop in six and a half years.

The institute is also negative about the domestic sector.

“With the end of government policies to boost domestic consumption, the general consumer sentiment is deteriorating,” it said.

According to the Bank of Korea, the consumer sentiment index dipped 2 points in January compared to the previous month, indicating that more people are pessimistic about the economy.

The KDI is also less positive about business investment.

“The average operation ratio of manufacturing firms stood at 73.8 percent as of December, which is a very low level,” the report said. “The figure shows that growth in facility investment has been nearly halted, and it will be difficult to see any noticeable improvement in the investment sector.”

According to a survey of 22 economic experts by the institute in January, the average growth forecast of the Korean economy stood at 2.7 percent for this year.

The average forecast by 10 foreign investment banks is 2.73 percent.

However, the government maintains a positive outlook for the economy, with Finance Minister Yoo Il-ho saying, “It is possible to reach 3.1 percent in growth without using a supplementary budget.”

The minister slightly changed his position on Wednesday by announcing a stimulus package consisting of 144 trillion won ($122 billion) worth of fiscal measures and the extension of the individual consumption tax cut on vehicles and luxury goods.

“Although the government hastily came up with the stimulus plan, it seems like the economy won’t grow as much as last year,” said Kim Seong-tae, a research fellow at KDI.

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