Korea’s growth grinding to halt

South Korea’s economic growth is expected to be virtually flat in the first quarter of this year, with its gross domestic product posting in the near zero percent range for six consecutive fiscal quarters, analysts said Tuesday.

Concerns are mounting that Asia’s fourth-largest economy will be entering an indefinite period of low growth amid sluggish consumption, investment and production.

Korea has been growing below 1 percent since the fourth quarter of 2013 when its growth stood at 0.9 percent and now a host of global and domestic securities and research companies are either revising down or considering cutting Korea’s growth forecast.

Some economists are already doing this. Nomura Securities recently lowered the country’s growth outlook from 3 percent to 2.5 percent. IHS Economics also cut Korea’s growth from 3.1 percent to 3.0 percent and Deutsche Bank from 3.6 percent to 3.4 percent. Meanwhile, the International Monetary Fund cut its outlook for Korea from 4.0 percent to 3.7 percent.

Into the future, Korea, which heavily depends on exports, will be affected by external conditions, with the U.S. being one of the few global economies expected to see solid growth this year.

“Recent trends in the global economy can best be described as multiple divergences,” said IHS in a report.

“To begin with, some economies are seeing robust growth (the U.S., the U.K., India), others are growing only modestly (the Eurozone and Japan), and yet others are contracting (Brazil and Russia).”

Korean research institutes, such as the Korea Institute of Finance, the Korea Economic Research Institute and the Korea Development Institute, are reported to be moving to revise their growth projections for the country.

The KIF, which initially forecast Korea’s economy to increase 3.7 percent this year, is said to be considering slashing the country’s growth to 3.3 percent after taking the fourth quarter gain of 0.4 percent into account.

“It will be considering (cutting) on account of slow exports in the first quarter of this year,” it said.

The state-run KDI, which initially projected 3.5 percent growth, could issue a revised outlook in May when it plans to readjust its economic indicators.

Analysts said that the Bank of Korea could also cut its key rate to revitalize the economy.

The central bank recently lowered its key interest rate to a record low of 1.75 percent on concerns about deflation.

“There is a possibility that it can lower its key rate to 1.50 percent in the second quarter or make another cut next month to create a policy effect (for economic growth),” said Shin Dong-jun, analyst at Hana Daetoo Securities.

By Park Hyong-ki (hkp@heraldcorp.com)