Asian Development Bank (ADB) has revised down South Korea’s economic growth forecast for this year to 2.1 percent from 2.4 percent, its second downgrade for the country’s growth so far this year amid growing concerns over export-reliant Asia’s fourth-largest economy hit by external headwinds.

In its Asian Development Outlook 2019 Update report released on Wednesday, ADB slashed its outlook for Korea’s gross domestic product (GDP) growth for 2019 from its previous forecast of 2.4 percent in July to 2.1 percent. The international development finance institution already revised down Korea’s growth for this year to 2.4 percent in July from its initial projection of 2.5 percent gain made in April.

ADB, which has turned more pessimistic about Korea’s economy in its newest forecast, also gave a growth projection of 2.4 percent for next year, 0.1 percentage point lower than the previous forecast of 2.5 percent.

The downward revision is largely due to escalating trade tensions between the United States and China as well as slowing growth in major advanced economies leading to a shrink in trade, which is a key driver of Korea’s economic growth. The world’s two biggest economies also are the country’s two biggest trading partners.

Korea also is in its own diplomatic and trade rows with Japan since Tokyo has tightened its controls over exports of chemicals and parts essential to produce Korea’s mainstay export items including semiconductors and display since July. All the external headwinds are weighing further on Korea’s economy that has been already grappling with weak domestic demand, the bleak job market and ongoing restructuring in the manufacturing industry.

ADB also painted a gloomy picture on Korea’s inflation, projecting the country’s inflation to remain subdued at 0.7 percent this year, down from its earlier forecasts of 1.4 percent in April and 1.1 percent in July. Its inflation forecast for next year is 1.4 percent.

After staying in zero territory since January, the longest period since February-November 2015, Korea’s benchmark consumer price index (CPI) in August retreated 0.038 percent to 104.81 from a year ago, the first time the country has experienced sub zero-inflation since data was available in 1965.

ADB also projected 45 Asian member countries’ economy to grow 5.4 percent this year, down 0.3 percentage point from its earlier forecast of 5.7 percent. It also slashed next year’s growth outlook from 5.6 percent to 5.5 percent.

In particular, ADB forecast China’s economy to grow 6.2 percent this year, below its earlier projection of 6.3 percent in both April and July, and even lower next year (6.0 percent).

ADB is not the only international institutions that have slashed Korea’s economic growth forecast for the second time this year. Just last week, the Organization for Economic Cooperation and Development (OECD) cut its 2019 growth outlook for the Korean economy by 0.3 percentage point from the May projection of a 2.4 percent gain to 2.1 percent in its Interim Economic Outlook report. The OECD had projected Korea’s economy to expand 2.8 percent this year in its projection in November last year, but revised down it by 0.7 percentage point over just a 10-month period.

In August, Moody’s Investors Services further revised down Korea’s growth estimate for this year to 2.0 three months after it cut the forecast from 2.3 percent to 2.1 percent in May. Another global credit rating agency Standard and Poor’s (S&P) also slashed its forecast for Korea’s GDP for this year two times so far this year, cutting the figure from 2.5 percent to 2.4 percent in April and further to 2.0 percent in July. Fitch cut the country’s growth estimate from 2.5 percent to 2.0 percent, while private institutions place growth estimate below 2.0 percent.

By Kim Yeon-joo and Lee Eun-joo

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