Growth forecasts cut and recession mentioned

GDP forecasts have been cut yet again, this time by a duo of major private think tanks.

One even suggested that the country has entered a recession.

The Korea Economic Research Institute (KERI), a think tank run by the Federation of Korean Industries lobbying group, announced in a report Sunday that it is lowering its 2019 growth projection from 2.2 percent to 1.9 percent.

The think tank cited sluggish exports amid the prolonged trade dispute between the United States and China and falling domestic demand.

KERI believes the remaining months of 2019 are not going to be any better than the earlier months, as consumer prices are not expected to rise fast enough and as local companies slow their facility investments.

The institute lowered its estimate from 2.4 percent to 2.2 percent in June, citing similar reasons.

KERI estimates that consumer prices will rise 0.5 percent in 2019 compared to last year due to a weak service sector.

Statistics Korea reported earlier this month that the consumer price index remained at the same level last month as in August 2018 - the first such result since the data started being recorded in its current form in 1965.

The 0.0 percent on-year inflation rate last month was a record low, falling below the previous record of 0.2 percent reached February 1999 in the wake of the Asian Financial Crisis.

Korea is also projected to experience a sharp fall in its trade surplus due to expanding trade protectionism globally, it added.

Also on Sunday, Hyundai Research Institute (HRI) announced in a report that it is lowering its growth projection for the country from its previous 2.5 percent to 2.1 percent. The institute also blamed slowing exports and weak domestic demand in cutting its forecast.

The institute said exports are not seen improving any time soon as the country’s export volume to China, the largest export partner for Korea, at 25 percent of the total, has been falling for 10 consecutive months. Overall, exports for Korea have been shrinking for nine consecutive months since December 2018.

The think tank added it is possible that Korea has entered a recession as the continuing diplomatic and economic feud with Japan is hurting overall investor sentiment.

Japan has strengthened export controls on materials used in semiconductor and display production - photoresists, hydrogen fluoride and fluorinated polyimide - since July.

Japan also removed Korea from its list of preferential trade partners, and Korea has decided to take a similar measure.

The think tank urged the government to come up with additional measures to reduce the possibility of Korea falling into deflation even though its increased spending this year failed to stimulate domestic demand.

BY KO JUN-TAE [ko.juntae@joongang.co.kr]