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2019 growth forecast is cut by the OECD to 2.0 percent

Nov 23,2019
Another GDP growth forecast was cut, this time by the Organisation for Economic Cooperation and Development (OECD).

It took its 2019 estimate down by 0.1 percentage points to 2.0 percent, joining a growing list of global institutions cutting the country’s forecast.

In its economic outlook report released Thursday, the OECD remained pessimistic about the country’s growth in the near future, blaming global trade tensions.

“Economic growth will remain subdued, as the global slowdown and trade tensions hold back exports, while high uncertainty weighs on investment,” read the report. “Shrinking export markets, heightened global uncertainty and falling prices for semiconductors are holding back exports and driving down business investment.”

Korea’s outbound shipments have declined on-year for 11 straight months.

The OECD’s forecast is in line with estimates from overseas and local institutions. The IMF last month lowered its growth outlook for this year by 0.6 percentage points to 2.0 percent. The Korea Development Institute, a state-run think tank, also expects growth to come in at 2.0 percent.

Even 2.0 percent might be difficult to reach. The country will need to post 0.97 percent growth in the final quarter of the year to hit that number.

Bank of Korea Governor Lee Ju-yeol said that could be difficult considering the economic headwinds.

For 2020, the OECD is maintaining its 2.3 percent forecast. The IMF expects 2020 growth to be 2.2 percent.

Hyundai Research Institute said in a recent report that even 2.0 percent could be difficult next year if exports and domestic consumption remain weak.

The OECD was receptive to the government’s efforts to increase spending to boost the economy and said it expects more monetary easing.

“Further monetary policy easing is expected in 2020, as headline inflation will remain below the 2 percent target,” read the report. “The fiscal expansion of over one percentage point of GDP in 2020 provides a welcome stimulus.”

The central bank already cut rates twice this year.

The OECD warned that Korea faces more long-term difficulties, considering its demographics.

“Sustaining long-term growth in the face of rapid population ageing will require structural reforms to boost productivity and create better jobs,” the report noted. “Easing labor market regulations and investing further in skills, especially digital, would help lift female and youth employment, enhance the quality of older workers’ jobs, and reduce labor market duality.”

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