Foreign IBs downgrade Seoul’s growth forecast

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Foreign IBs downgrade Seoul’s growth forecast

Major foreign investment banks (IBs) have become gloomier about Korea’s 2018 growth outlook due to negative factors both at home and abroad, with their expectations of a rate hike in the fourth quarter losing steam, a report said Thursday.

According to the report by the Korea Center for International Finance, Goldman Sachs downgraded the growth forecast for Asia’s fourth-largest economy to 2.7 percent late last month, from a 2.8 percent estimate a month earlier.

The global investment bank also cut Korea’s 2019 growth prediction to 2.7 percent from 2.9 percent.

Goldman Sachs is not alone. In a report released late last month, UBS lowered Korea’s growth forecasts for 2018 and next year to 2.9 percent from 3 percent as of end-July.

Nomura on Wednesday downgraded Korea’s growth projection for this year to 2.8 percent from a 3 percent forecast at end-August.

As of the end of last month, Korea’s economic growth projections by eight major global IBs averaged 2.9 percent for this year.

Market watchers said their downgrades may stem from Korea’s sluggish job market, worsening consumer confidence and adjustments of construction and corporate facility investments.

The Korean economy is also gripped by such external downside risks as a trade conflict between the United States and China, as well as financial instability sparked by some emerging markets, they added.

With the Korean economy losing momentum, the IBs lowered Korea’s inflation outlook to 1.6 percent late last month, down 0.1 percentage point from the previous month.

The downgraded inflation forecast has stoked expectations that the Bank of Korea (BOK) may not jack up the country’s benchmark interest rate during the fourth quarter of this year, as forecast by them.

Citi, which has forecast a rate hike in November, said recently that there is room for the BOK to further delay its rate raise should the trade conflict worsen.

As widely expected, the central bank froze its policy rate at 1.5 percent for August on sluggish economy data and low inflation pressure. The BOK has taken a wait-and-see stance since November last year, when it adjusted up the key rate for the first time in more than six years, citing the economic recovery.

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