South Korea's central bank on Thursday lowered its economic growth and inflation outlook for the year by 0.2 percentage point each, factoring in the impact of the Sewol ferry disaster that pummeled consumer and business sentiment in Asia's fourth-largest economy.
The Bank of Korea (BOK) cut its growth forecast for the year to 3.8 percent from 4 percent, while trimming its growth outlook for next year to 4 percent from 4.2 percent. The previous estimates were released in April.
"The downward revision comes as consumer spending growth estimate was sharply lowered, reflecting the impact of the Sewol ferry accident," BOK Deputy Gov. Suh Young-kyung said in a news conference.
The central bank slashed its consumer spending growth estimate for this year to 2.3 percent from an earlier estimate of 3.1 percent.
The BOK, however, projected growth to gradually pick up in the second half on the back of improved sentiment and a mix of factors such as the Incheon Asian Games and a resumption of school field trips that had ceased after the ferry sinking.
While Suh forecast the economy to start recovering in the third quarter, she said downside risks, such as a prolonged slump in consumer sentiment and higher currency volatility, are bigger than upside risks.
The central bank's revised inflation outlook for the year came in at 1.9 percent, down from an earlier forecast of 2.1 percent.
The outlook for next year also inched down to 2.7 percent from 2.8 percent.
The BOK cited weak agricultural product prices, a strengthening won and a delay in public fee hike as some of the factors that prompted the central bank to lower the inflation forecast.
Current account surplus was projected to reach US$84 billion this year and $70 billion for 2015. Both figures are higher than earlier projections of $68 billion and $58 billion.
In 2013, South Korea saw its surplus widen to a record $80 billion on solid exports.
The Thursday revision is the latest in a series of downward adjustments on the course of Asia's fourth-largest economy. Last month, the Korea Development Institute cut its estimate to 3.7 percent from 3.9 percent while the Korea Institute of Finance lowered its outlook to 4.1 percent from 4.2 percent.
The finance ministry is also expected to cut its growth outlook for the country, with the details to be included in the second-half economic management plan.
Government sources and other experts say the government will lower its growth outlook to the 3.5-3.7 percent range from 3.9 percent. (Yonhap)