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Will Korea’s 2014 growth to face further downward revision?
Publication Date : 07-10-2013
South Korea is expected to see its growth projections for 2014 revised by financial organisations as external uncertainty over the global economy is weighing down its prospects.
Even though recent data on Korea’s economic activity showed significant improvements, a government shutdown and expected monetary stimulus cuts in the US, as well as China’s slower growth forecast, would inevitably undermine Korean exports.
The Bank of Korea and the International Monetary Fund are expected to revise down their growth outlook for the Korean economy this week, following a downward projection by the Asian Development Bank last week.
Goldman Sachs forecast Korea to grow 3.7 per cent in 2014, up from its initial estimation of 3.5 per cent due to improved global demand and investments.
The ADB lowered Korea’s 2014 growth projection from 3.7 per cent to 3.5 per cent last week in part due to weakening demand in China, while maintaining its 2013 forecast at 2.8 per cent.
China’s 2014 growth has been revised down from 8 per cent to 7.4 per cent.
“Growth rates (in rest of East Asia) are now expected to be generally below April projections because of weaker external demand,” the ADB said in a report.
The IMF released its revised outlook report on the global economy last July with lowered projections for the US, China and Europe, citing the prolonged debt crisis, a slowdown in emerging economies and spending cuts in the US.
Its July report did not mention Korea’s growth. The IMF plans to report its forecast revisions, including one for Asia’s fourth-largest economy, this Tuesday.
The Bank of Korea is also reportedly set to cut Korea’s growth projections to around 3.8 per cent from 4 per cent for next year, and expected to freeze its key base rate when it holds its monetary policy committee meeting this Thursday.
The US’ shutdown and a possible brinkmanship over debt ceiling negotiations, along with the Federal Reserve’s plans to normalise its monetary policy, are posing a downside risk to the Korean economy.
The US Treasury Department urged political parties for an immediate resolution, otherwise face consequences of the world’s largest economy inflicted with “wounds that could impede economic growth and create uncertainty”.
“Political brinksmanship that engenders even the prospect of a default can be disruptive to financial markets,” it said.