Government view on the economy remains dimThe Korean government is officially pessimistic about the economy, for the fourth month running.
In an economic trend report, the Ministry of Economy and Finance said that the economic situation remains subdued as exports decline and investment remains weak, despite an uptick in consumer spending.
Amid the uncertainties surrounding U.S.-China trade negotiations, other external factors are weighing, such as slowing global economic growth and the continuing decline of the semiconductor industry.
The Finance Ministry has maintained a negative view on the economy since April. Until March, the government had been optimistic, stating that industrial activity and economic sentiment were improving.
This is the longest stretch for the government to see the economy as subdued in two and a half year. It has a similar outlook between October 2016 and January 2017.
While stressing that the government will focus on managing risk, including the Japanese export restrictions, the Finance Ministry added that it will also prepare to immediately execute the supplementary budget once it passes the National Assembly and speed up the implementation of other economic policies announced on July 3, including revitalizing investment, exports and the domestic markets.
“We have to look at the risks of Japan’s restrictions,” said Hong Min-seok, director at the ministry’s economic analysis division. “
On July 3, the Finance Ministry shaved 0.2 percentage points off this year’s growth projection. It estimates that the economy this year will grow between 2.4 percent and 2.5 percent.
The revised outlook did not consider Japan’s trade restrictions, a response to a Korean Supreme Court wartime forced labor ruling.
Now all eyes are on the Bank of Korea, which will announce its economic outlook on Thursday.
“It’s hard to predict at this point as there are various scenarios to how Japan’s export restrictions will unfold,” Hong said.
There is a growing consensus that it will be difficult for the central bank to hold a positive view and that it could lower the economic outlook to 2.4 percent, or even to 2.3 percent.
The central bank lowered its outlook in April from 2.6 percent to 2.5 percent.
“The revised outlook by the Bank of Korea is based on the premise that consumer spending, investment and exports will improve in the second half,” said Ahn So-eun, IBK Investment & Securities. “With a new risk of Japan’s export restriction added, it would be difficult for the BOK to maintain a positive view.”
Yet the outlook of government is considered to be relatively positive considering that Morgan Stanley lowered its outlook from 2.2 percent to 1.8 percent while Standard & Poor’s adjusted its from 2.4 percent to 2 percent.
BY LEE HO-JEONG [firstname.lastname@example.org]
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