KDI raises GDP forecast to 2.6%

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KDI raises GDP forecast to 2.6%

The Korea Development Institute, a state-run think tank, raised its outlook for the country’s economic growth on Tuesday, one week after the Korean central bank raised its forecast for GDP growth this year.

However, the think tank remained cautious about next year, citing various uncertainties in the global economy that might have negative impacts later on domestic consumption.

The Korea Development Institute predicted the economy this year would likely grow 2.6 percent, 0.2 percentage points higher than its previous projection in December. It was the first time since November 2013 that the think tank raised its outlook from a previous forecast.

The group attributed the more optimistic projection to recovering exports and investment in the Korean economy.

“Exports have been improving as the global economy has begun to recover and the local semiconductors sector remains strong thanks to high demand from abroad,” said Kim Sung-tae, a senior researcher at the Korea Development Institute. “The global economic outlook has been going down for the past five to six years, but we believe this year’s global situation will be better than expected as well.”

Although the think tank raised its forecast for this year, the projection is still lower than the 2.8 percent growth experienced last year. One of the biggest reasons is depressed consumption from slow growth in nominal wages, the group said.

The Korea Development Institute added that domestic consumption might further weaken as the labor market remains sluggish. Restructuring in the shipping and shipbuilding sectors, which has been ongoing since last year, has reduced the number of relatively high-income and stable jobs, and the number of self-employed workers continues to grow at a fast rate.

As a result, the institute said next year’s outlook will likely be lower than this year, at 2.5 percent.

The think tank added that various uncertainties from abroad, including protectionist trade policies in the United States, might have negative impacts on the local economy since Korea is highly dependent on exports.

Still, Kim at the Korea Development Institute said it was too early for the government to consider another supplementary budget, a common stimulus measure used by the government to boost the local economy.

“There are requirements to execute a supplementary budget, such as cases of natural disasters and severe problems in the labor market,” he said. “However, I do not think we need it at the moment. But the government might still consider it after monitoring various factors such as economic situations in neighboring countries like China.”

Last week, the Bank of Korea raised its growth outlook for the year from 2.5 percent to 2.6 percent.

On Tuesday, the International Monetary Fund raised its forecast for Korea from 2.6 percent to 2.7 percent.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]
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