OECD cuts S. Korea's 2015 growth outlook to 2.7 pct

SEJONG, Nov. 9 (Yonhap) -- The Organization for Economic Cooperation and Development (OECD) on Monday downgraded South Korea's 2015 economic growth outlook due to weak domestic consumption and minus export growth.

In its latest Economic Outlook report, the Paris-based organization said that gross domestic product (GDP) for Asia's fourth-largest economy will likely grow 2.7 percent this year, down from its previous estimate of 3 percent announced in June.

The annual growth number represents a noticeable contraction from the 3.3 percent expansion reached in 2014.

The number is lower than the 3.1 percent growth being forecast by the finance ministry and on par with the Bank of Korea's estimate released last month.

For 2016, a drop in crude oil prices, combined with a rise in consumption and income, could allow South Korea to pull off 3.1 percent annual growth, the OECD said. This is also down from 3.6 percent growth that the OECD calculated could be reached in the new year.

"The economy was hit by two shocks in 2015 - an outbreak of the Middle East Respiratory Syndrome (MERS) and a marked slowdown in demand from China and other Asian countries - that reduced output growth to around 2 percent," the OECD said. "While the MERS outbreak has been resolved, weaker demand from Asia remains a headwind to growth."

The respiratory disease claimed 37 lives in South Korea, with 187 people being infected. Since early July there has been no new cases of MERS in the country.

The OECD also said that the appreciation of the won, which rose more than 20 percent in trade-weighted terms during the three years leading up to April of 2015, hurt the country's international competitiveness.

South Korea's exports contracted from a year earlier for the 10th straight month in October, with outbound shipments coming to US$43.47 billion last month, down 15.8 percent from the same month last year. The drop marked the sharpest fall in six years.

The OECD said the government needs to consider supplementing the 2015 fiscal stimulus in the new year, especially since inflation is far below the 2.5-3.5 percent target range. It said further cuts in the policy interest rates would be beneficial for the country.

South Korea's inflation remains below the 1 percent mark, while the benchmark interest rate has fallen to a record low 1.50 percent.

The organization added the country needs to push forward wide-ranging structural reforms.

On the plus side, it said both growth and inflation are projected to pick up pace in 2016 and 2017. "Despite weaker demand from China, output growth is expected to gain momentum, rising from 2 percent in 2016 to 3 percent in 2017," the OECD claimed. It said new free trade agreements with Australia, Canada, New Zealand and China will support export growth.

The OECD predicted the world economy to expand 2.9 percent this year, down from its earlier estimate of 3.1 percent.

The organization said the U.S. economy and the Eurozone is expected to fuel growth, while Japan's rebound will likely remain weak. It said China's growth may continue to slow down.

The OECD said strong consumer demand and business investment is generating growth in the United States, while low oil prices and expansionary fiscal policies are helping to prop up growth in Europe.

It said growth in global trade will reach 2 percent this year, down from its earlier estimate of 3.9 percent announced in June.

The OECD said the U.S. economy may grow 2.4 percent this year, up from 2 percent predicted in June, with the eurozone likely to expand 1.5 percent this year, compared to 1.4 percent predicted earlier in the year.

Growth for Japan may inch down to 0.6 percent from 0.7 percent.

For 2016, the OECD said the global economy may pull off 3.3 percent growth, down from its prediction of 3.8 percent. It said trade will growth 3.6 percent, down from 5.3 percent forecast five months earlier.

It said the U.S. economy may grow 2.5, with numbers for the eurozone hitting 1.8 percent and 1 percent for Japan.

Numbers for all three are down compared to predictions made in June.