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Finance Ministry sticks to 3% forecast for 2018

June 09,2018
Korea’s economy is still on track for decent growth, according to the country’s Finance Ministry on Friday.

“Our economy has witnessed some adjustment recently in facilities investment and spending,” said the Ministry of Strategy and Finance in a monthly economic analysis report released on Friday. “But with production in the mining and manufacturing sector as well as investment in construction turning around, it is on the recovery mode overall.”

According to data by the ministry, investment in facilities fell by 3.3 percent in April compared to a month earlier and retail sales tumbled by 1 percent. On the other hand, production by mining and manufacturing companies increased by 3.4 percent from a month ago and investment in construction 4.4 percent.

“The economy is likely to maintain the recovery, owing to the improvement in the global economy, alleviation of geopolitical risk and recovery in investment sentiment,” the report predicted. “But danger factors remain such as the base rate hike by the United States amid stagnant employment [in Korea].”

The ministry remained adamant on its projection of Korea’s gross domestic product (GDP) growth for the year at over 3 percent.

“The government’s stance is that the economy will grow in the range of 3 percent,” said Ko Kwang-hee, economic analysis division director at the Finance Ministry. “That said, with the GDP growing at 1.0 percent in the first quarter, we need about 0.8 percent growth on average for the remaining quarters to achieve that goal.

“But we are not in a situation where the growth will hit negative terrain,” Ko added.

“It’s true that incomes for those in the first quintile [bottom 20 percent] fell recently,” Ko said when asked about widening income equality seen in statistics for the first quarter. “But overall, nominal incomes showed growth and this will have a positive impact on spending in the future.”

The ministry predicted that the economy will continue to grow at a similar level next year.

But warning signals have been seen both within the country and abroad.

In a report released on June 1, the Hyundai Research Institute, a local private think-tank, said the Korean economy has turned from a retreating phase to a recession phase, the pace of which is faster than originally anticipated. Previously, the institute predicted that the economy would fall into a recession phase in the second half of the year. The institute forecast that both facilities and construction investment will “almost certainly” fall soon.

“The fall in investment is the biggest risk factor [for the economy],” said Ju Won, chief economist at the institute, who explained that the decrease in investment translates into a decline in employment.

LG Economic Research Institute, another leading private think tank in Korea, also said the growth of the Korean economy is likely to slow, estimating that the economy will post 2.8 percent growth this year. The Korea Development Institute, a top government-run think tank, lowered its projection for the year from 3.1 percent to 2.9 percent recently.

“Global growth has eased but remains robust and is projected to reach 3.1 percent in 2018,” wrote the World Bank in a report titled “Global Economic Prospects” released earlier this week. “It is expected to edge down over the next two years as global slack dissipates, trade and investment moderate and financing conditions tighten.”

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]