The nation’s central bank is expected to lower its economic growth forecast this week as tepid domestic consumption and a strong local currency fuel fears over the economic turnaround.
Market watchers said the Bank of Korea may trim down its gross domestic product growth outlook by 0.2 to 0.4 percentage point from its early projection of 4 percent at a scheduled policy meeting on Thursday.
“The Korean economy exhibited a delayed economic recovery with ongoing impacts of the Sewol ferry tragedy,” the KDI said in a monthly report released on Sunday.
Separately, the Korea Development Institute, a state-run think tank, recently downgraded its 2014 GDP growth target to 3.7 percent from 3.9 percent, citing negative impacts from sluggish consumption in the private sector.
The Korea Institute of Finance also lowered its growth projection 0.1 percentage point based on the expected decline in spending sentiment in the wake of the sunken ferry disaster.
Another reason for the downgrade, analysts say, is the continuing strength of the local currency.
The Korean won has gained some 12 percent against the greenback in the past year. The gain has further accelerated in recent months and is now raising worries among exporters about weakening price competitiveness.
The series of downgrades in GDP forecasts have fanned speculation that the central bank may cut its key benchmark rate as a precautionary measure to maintain growth in Asia’s fourth-largest economy. But the prevailing view is that the central bank is likely to leave its benchmark interest rate unchanged at 2.50 percent at the monthly monetary committee meeting this week.
By Oh Kyu-wook (firstname.lastname@example.org)