The Korea Herald

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Foreign banks cut Korea’s growth outlook to 2.6%

By 김연세

Published : July 30, 2015 - 17:40

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Global investment banks recently revised down their outlook on South Korea’s economic growth, despite the favorable financial indexes for exporters compared to earlier this year.

According to the Korea Center for International Finance, the projection of 10 major IBs since June on the nation’s 2015 gross domestic product growth is set at 2.6 percent on average.

Though the IBs shared the view that Korea would see a recovery from the third quarter after bottoming out in the second quarter, they cut their yearly forecasts citing the worse-than-expected growth of 0.3 percent in the second quarter.

HSBC revised its outlook down to 2.4 percent, from its earlier projection of 2.8 percent. This marked the first forecast below 2.5 percent made by an IB or economic research institute at home or abroad.

The bank said the slump in private consumption would continue due to the record household debt and a drop in the number of inbound tourists. It also predicted that the sagging exports may not rebound in the wake of weak growth in major emerging countries.

Morgan Stanley and Nomura Securities forecast 2.5 percent growth, followed by Barclays, JPMorgan Chase and BNP Paribas which predicted 2.6 percent.

Nomura said the third and fourth quarter growth would be 0.8 percent and 1 percent, respectively, on the back of the government-led extra budget and an improvement in private consumption.

The bank estimated that the slump in the first half would contain the yearly growth at 2.5 percent.

Goldman Sachs, Bank of America Merrill Lynch and Citigroup have lowered their outlook to 2.7 percent, while Standard Chartered forecast 2.8 percent.

Most of them noted the Korean currency’s recent weakness versus the U.S. dollar which is not benefiting exporters. They cited the Japanese yen’s weakness against the won and dollar over the past year, which would make it difficult for Korean exporters to regain their price competitiveness.

Contrary to these forecasts, the Korean government is still predicting growth would not sink below 3 percent.

The projection of the Finance Ministry and the Korea Development Institute is set at 3.1 percent and 3 percent, respectively.

Meanwhile, the International Monetary Fund and the Organization for Economic Cooperation and Development expect a 3.1 percent and 3 percent growth, respectively, though they too have revised it downward.

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