• At least three economists have downgraded their 2019 growth forecasts for South Korea.
  • The South Korean economy unexpectedly contracted by 0.3% quarter-on-quarter in the January-March period this year, according to an advance estimate released by the country’s central bank.

Several economists, including one from U.S. banking giant J.P. Morgan, have downgraded their 2019 growth forecasts for South Korea, after an official estimate showed the north Asian economy unexpectedly shrank in the first quarter.

The country’s central bank, the Bank of Korea, surprised investors and analysts on Thursday by announcing that the economy contracted by 0.3% on a quarterly basis in the period from January to March this year. None of the economists polled by Reuters had foreseen a contraction.

Compared to a year ago, the South Korean economy grew by 1.8% in the first quarter, according to the central bank’s advance estimate. That’s below the 2.5% expansion that the Reuters poll had projected.

The disappointing economic performance in the first quarter led at least three economists to revise downward their annual growth forecasts for South Korea.

Seok Gil Park, an economist at J.P. Morgan, said the South Korean economy will likely “rebound strongly” in the following quarters. Still, the disappointing first quarter will drag down the country’s 2019 growth, Park wrote in a note after the data release.

The economist now expects South Korea to grow by 2.4% for the full year, down from the previous projection of 2.6%. The north Asian economy had grown by 2.7% in 2018.

Others have penciled in a more severe slowdown. Economists from Australian bank ANZ wrote in a report on Thursday that South Korean economic growth in 2019 will likely be lackluster. They downgraded the country’s growth for this year to 2.2% from their previous estimate of 2.5%.

“There are reasons to think Q1 may have marked the bottom for South Korea’s growth,” ANZ said, citing indicators that pointed to a likely pick-up in global semiconductor sales — a major product that the country exports.

“Nonetheless, the big picture is that South Korea’s growth will likely be lacklustre in 2019 and any recovery is expected to be gradual. Customs trade data for the first 20 days of April (released earlier this week) suggest the export sector is still struggling for momentum … with semiconductors as the major drag,” the bank explained.

Consultancy Capital Economics was even more pessimistic about the country’s prospects. Its economist, Alex Holmes, wrote in a report that he expects South Korea to grow by 1.8% this year — lower than his previous forecast of 2%.

“Any recovery in growth is likely to be very weak,” said Holmes. He added that exports continue to be challenged, while domestic consumption may stay weak.

Source: CNBC


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