Growth forecast may fall below 3% for first time since 1999

There is an increasing chance that the government may lower South Korea’s annual growth projection for next year to below 3 percent, due to stronger downward pressure from US President-elect Donald Trump’s uncertain trade policies and the domestic political scandal.

Private economic think tanks, such as LG Economic Research Institute, have already revised down the nation’s growth projections to 2.2-2.7 percent for next year.

The Bank of Korea also lowered its projection from 2.9 percent to 2.8 percent last month.

Korea’s growth in gross domestic product declined to 2.6 percent in 2015 from 3.3 percent in 2014, according to data by the BOK.

Most recently on Nov. 10, Vice Finance Minister Choi Sang-mok said at a press meeting, “It is true that downside factors are growing,” when asked about the possibility of lowering the ministry’ growth projection from 3 percent which was forecast in June.

“Considering those factors, the government is to decide on the direction of economic policies for next year,” he said.

Lee Ho-seung, a director general at the Ministry of Strategy and Finance, said he was “working on” the growth projection and economic policies for next year, refusing to comment further.

The government is to announce annual economic policies for 2017 in December.

If it revises down the annual growth forecast to below 3 percent, it will be the first time the Korean government has come up with a 2 percent-range figure for the upcoming year since late 1999 when the economy was hit by the 1998 Asian financial crisis.

Korea’s exports are exposed to larger external risks, such as Trump’s protectionist stance in global trade, the Federal Reserve’s possible rate hike in December and the UK exiting from the European Union.

Domestic demand is also at risk due to the impact of the anti-graft law on consumption as well as the ongoing corporate restructuring, which is happening amid the influence-peddling scandal involving President Park Geun-hye and her confidante Choi Soon-sil.

If the nation’s GDP growth rate fails to hit 3 percent next year, it will be the first time the Korean economy achieves a less than 3 percent growth for a third consecutive year since 1961.

The year 2017 will be the first year that the population aged between 16 and 64 will begin to shrink, the government predicts.

According to the state-run Korea Development Institute, Korea’s growth potential is projected to fall to 1.8 percent between 2026 and 2030 due to the aging population and low birth rates. 

By Kim Yoon-mi (yoonmi@heraldcorp.com)