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KIET reduces its estimate for 2019 growth to 2.4%

But export decline in second half will level off, think tank says
June 25,2019
A state-run think tank cut this year’s economic growth forecast to 2.4 percent, joining a growing list of organizations revising the figure over concerns of declining exports and global trade uncertainties.

The Korea Institute for Industrial Economics and Trade (KIET) said Monday that it expects Korea’s gross domestic product (GDP) to grow by 2.4 percent in 2019 from last year compared to an earlier estimate of 2.6 percent.

Its report follows similar downgrades by organizations domestic and abroad. The Bank of Korea lowered its estimate by 0.1 percentage points in April to 2.5 percent, while global credit agency Fitch Ratings slashed the country’s economic growth estimate for this year to 2 percent from 2.5 percent earlier this month.

“Amid a decline in exports, the slowing domestic situation such as consumption and investment has led the economy to fall under a clear downward trend,” said the KIET report.

Exports have struggled this year as global demand for semiconductors has slowed. According to the Korea International Trade Association, Korea exported $227.4 billion worth of products through May, a 7.4 percent decline from the previous year.

Semiconductor exports through May fell 21.9 percent compared to the same period a year earlier.

KIET said it expects total exports this year to amount to $569.2 billion, a 5.9 percent decline from the previous year. The trade surplus is forecast at $42.1 billion compared to last year’s $69.7 billion.

The think tank explained that while the situation is expected to improve in the latter half of the year, even that could be limited by global trade friction such as the U.S. ban on China’s Huawei products.

“Exports in the second half of 2019 are expected to decline at a slower rate due to semiconductor prices falling at a slower rate,” said the think tank. “If the U.S.-China trade conflict extends, major industries’ demand [for semiconductors] will shrink due to a global economic slowdown and a recovery for the local semiconductor industry could also slow.”

It said that the Huawei ban could be damaging to the local industry as the Chinese electronics giant imports significant amounts of semiconductors from Korean companies, accounting for 12 percent of SK Hynix’s sales and 3 percent of Samsung Electronics’.

The think tank also forecast a difficult year ahead for domestic industries in general as exports for eight of 13 major industries are expected to decline in the second half of the year from the previous year.

It said that exports for the semiconductor industry will decline by 21.3 percent due to reduced costs for chips, while exports for the display industry will fall 7.4 percent due to increased production from China.

KIET added that the rechargeable battery industry will continue its growth, with exports rising by 11.8 percent in the second half of the year due to increased demand.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]