South Korea’s state think tank Korea Development Institute (KDI) on Wednesday turned more pessimistic about the country’s economy and slashed its growth outlook for this year to 2.0 percent and next year to 2.3 percent.

The forecast is each 0.4 percentage points and 0.2 percentage points lower than its outlook in May.

In a briefing on Wednesday, Kim Sung-tae, head of economic outlook at KDI, said that overall growth trend has been reduced amid depressed investment that has led to sluggish manufacturing sector and spending. Growth trend has also significantly weakened amid increased external uncertainties in the second and third quarters such as the trade dispute between the United States and China.

The KDI judged that the Korean economy is showing signs of low growth as exports and investments are affected by weakening demand at home and abroad. Next year, the KDI forecast the country’s economy to perform better than this year with marginal improvements in domestic spending and exports.

Kim from KDI said that the country’s coincident index and cycle variation value have remained flat recently and business survey index measuring sentiment has shown a rebound.

KDI’s economic growth outlook, meanwhile, is lower than 2.2 percent forecast by the Bank of Korea for this year and 2.5 percent for next year. Hong Nam-ki, deputy prime minister for economy and economy and finance minister, on Monday pledged the government will aim to achieve growth rate of above 2.2 percent and 2.3 percent next year and indicated 2.0 percent growth for this year.

By sector, KDI projected facility investment to increase 8 percent next year thanks to recovery in chip demand, turning around from a projection of 7 percent fall this year.

Private spending will increase 2.1 percent next year, up from 1.9 percent this year, the think tank projected, while exports will gradually improve amid increasing investment demand in emerging countries and a rise in product shipments.

The KDI forecast that this year’s outbound shipments will fall 9.6 percent but increase 4 percent next year. The country’s current account is projected to remain at similar level next year at $58.9 billion with this year’s $57.5 billion.

Korea’s consumer prices would grow 0.6 percent next year, similar to 0.4 percent this year, it projected.

KDI noted that recovery in the Korean economy could be delayed due to emerging external downside risks such as the U.S.-China trade war, Britain’s exit from the European Union, and rising geopolitical tension in the Middle East. The economy could grow at a faster pace if global demand for semiconductors recovers.

The think tank remained pessimistic about meaningful rebound in the private sector and advised policymakers to maintain expansionary policy to support economic recovery. It predicted the central bank deliver one more cut in interest rate within six months. The BOK cut the rate twice in July and October to a record low of 1.25 percent.

By Oh Chan-jong and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]