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Finance Ministry pressured to reduce growth target

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Published : 2014-05-14 21:16
Updated : 2014-05-14 21:16

Economic policymakers could eventually choose to lower their projection on the yearly growth of gross domestic product in the wake of several negative factors that are simultaneously undermining indices and sentiment, industry watchers said Wednesday.

Some state-controlled think tanks have already revised down ― or seek to reduce ― their GDP outlook in reflection of the sagging private consumption after the April 16 ferry disaster and the recent difficulties for exporters due to the Korean currency’s rapid appreciation.

Last week, the Korea Institute of Finance revised its 2014 economic outlook down by 0.1 percentage point to 4.1 percent.

Further, KIF predicted that the growth could stay at 3.9 percent should the frozen consumer sentiment continue until the third quarter.

“The second-quarter growth is projected to fall 0.22 percentage point on-year,” said KIF senior research fellow Park Sung-wook.

The state-run Korea Development Institute is also poised to lower its GDP growth outlook by 0.1 to 0.2 percentage point from its earlier forecast of 3.9 percent.

“Considering indices in the first quarter and lackluster consumption in the second quarter, it is necessary to revise down the outlook,” a KDI economist said. “The revised figure will be publicized later this month.”

KDI is also expected to take Korea’s strong position versus major currencies into consideration as the cheap U.S. dollar and Japanese yen are dealing a blow to local exporters.

Officials at KIF and KDI shared the view that the Finance Ministry and the Bank of Korea will lower their growth targets from 3.9 percent and 4 percent, respectively, in the coming weeks.

Earlier in the day, Deputy Prime Minister and Finance Minister Hyun Oh-seok vowed to take contingency plans in a bid to support small and mid-sized enterprises, which may be hurt by the sluggish consumption and unfavorable exchange rates.

Hyun said during a meeting of economy-related ministers that the government will prioritize with risk management in foreign currency trading.

“International financial markets of late seem to have gained some stability, but external risk factors are still lingering,” he said. “We will brace for an increase in global financial market volatility and thoroughly check risk management conditions in both the public and private sectors.”

The U.S. dollar, which is being traded at the cheapest level in five years, inched up against the won thanks to Korean policymakers’ verbal intervention. It closed at 1,027.9 won, up 5.8 won from a trading session earlier.

The Japanese currency edged up to 1,006.2 won per 100 yen Wednesday. The won-yen rate fell below the 1,000 won level to close at 999.41 won the day before.

By Kim Yon-se (kys@heraldcorp.com)

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