[INVESTOR] South Korea slashed its 2016 economic growth outlook by 0.3 percentage point to 2.8 percent, joining other private institutions that have already made downward revisions of their own growth estimates.

The Finance Minstry’s latest forecast is on par with those made in April by the Bank of Korea, but is slightly higher than the 2.7 percent estimate by the International Monetary Fund.

In 2015, the South Korean economy expanded 2.6 percent annually, decelerating from the previous year’s 3.3 percent on-year growth. 



Citing the reasons behind the cut, Lee Ho-seung, a director general at the Ministry of Strategy and Finance said that the South Korean economy is “likely to lose momentum in the second half due to sluggish exports and the end of the government-led tax-cut programs.

He added that on-going corporate restructuring process will also have a heavy impact on employment, investment and production.

The ministry also said that sluggish exports are expected to continue to face a setback in the coming months because of contracted global demand.

The country’s exports will likely fall 4.7 percent in 2016 from a year earlier, narrowing from an 8 percent drop in 2015, with imports declining 6 percent on-year, according to the ministry.

It predicted that the country’s current account surplus will shrink to $98 billion this year from $105.9 billion last year as imports increased by a wider margin than exports due to rising oil prices.

South Korea’s outbound shipments fell 6 percent on-year in May, marking a record 17-month losing streak.

Also, spending at home does not show signs of improvement, the ministry noted. Sales of passenger cars jumped 18.9 percent on-year in March on the back of tax benefits, but growth slowed to 5.8 percent in April. The figure is expected to backtrack in the second half, as the six-month tax program will come to an end this month.

On the production side, industrial output fell 2.8 percent on-year in April, posting negative growth for the second straight month and widening its downward pace from March.

In addition to the latest Brexit crisis, South Korea is grappling with nationwide corporate restructuring in key sectors, such as shipbuilding and shipping.

By Kim Ji-hyun (jemmie@heraldcorp.com)