+ A

Moody’s sees GDP growth in 2019 at a mere 2.1%

Mar 06,2019
U.S. credit agency Moody’s lowered its economic growth estimate for Korea, following several other institutions.

Moody’s projected Korea’s GDP growth this year will be 2.1 percent, a sharp drop from last year’s 2.7 percent.

That projection is lower than the Bank of Korea’s 2.6 percent estimate and the Korea Development Bank’s 2.6 percent to 2.7 percent outlook.

“The weakening of the investment cycle and the deceleration in global trade have hurt economic momentum,” Moody’s report said. “Subdued demand for intermediate products from China, especially semiconductors, has had an adverse impact on exports as well as on the investment outlook.”

Korean companies’ investments in factories and machinery have been falling for three consecutive months.

According to a Statistics Korea report released at the end of February, facilities investments fell 16.6 percent in January following December’s 14.9 percent decline.

However, month-on-month investment in January was up for the first time in three months, growing 2.2 percent, which the statistics agency flagged as a positive sign.

Exports are a major problem. Exports last month fell 11.1 percent, the sharpest drop since April 2016, prompting the government to announce Monday 235 trillion won ($208.6 billion) in trade financing this year and 352.8 billion won in export marketing.

There are worries about slowing global economic growth and its impact on Korea’s exports.

Moody’s forecast the U.S. economy to grow 2.5 percent this year, down from last year’s 2.9 percent.

Next year, it predicted it will sharply drop to 1.7 percent.

Growth in the Euro zone is expected to fall from last year’s 1.9 percent to 1.6 percent this year and 1.5 percent in 2020.

China, which is the largest export market for Korea, is expected to see its growth fall from last year’s 6.6 percent to 6 percent.

If it does, it would be the slowest annual growth since 1990, when the Chinese economy grew 3.9 percent.

Other private think tanks have also projected low growth for this year.

The Hyundai Research Institute and LG Economic Research Institute both forecast growth of 2.5 percent while the Korea Economic Research Institute, a think tank owned by one of Korea’s leading business lobbying groups, projected this year’s growth at 2.4 percent.

These forecasts were made ahead of the recent releases of Korea’s export performances, which means that the predictions could be lowered even further.

Moody’s report also noted the impact of sharp hikes in the minimum wage under the Moon Jae-in administration on the economy.

“A minimum-wage increase is largely blamed for the lackluster employment growth, with small businesses viewing the hikes as a challenge to their competitiveness,” the report stated.

While it noted that high levels of household debt were a negative factor in terms of consumption, it noted that if the Moon administration’s fiscal measures work - including a 22 percent increase in job budgets - the higher minimum wage and “better job prospect” will contribute to greater spending and possibly boosted economic growth.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]