South Korea’s economy is showing signs of softness with output falling in the first quarter of this year. While the economy is not expected to fall into a recession, the growth forecast has been prompted to be downwardly revised. According to a Scotiabank research report, the country’s real GDP is expected to grow 2 percent year-on-year in the whole of 2019 and 2.7 percent in 2020.
The South Korean economy is export-oriented and is experiencing the effect of subdued global demand, trade tensions between China and the U.S., and the ongoing downturn in the global semiconductor sector, which shows lower Chinese demand and smartphones’ longer replacement cycle.
Furthermore, if the U.S. administration decides to move ahead with tariffs on automobile imports by its self-imposed mid-November deadline, the South Korean outlook might be negatively affected as 30 percent of the nation’s exports to the U.S. consist of vehicles and their parts.
Domestic demand is likely to play an important role in the South Korean economic outlook. While the labor market has softened slightly in recent months, consumer spending will be supported by recent hikes in minimum wage.
Construction and facilities investment is set to stay muted, owing to concerns about domestic and global economic developments, yet the Bank of Korea’s accommodative monetary policy stance is expected to give needed support for private sector investment.
“Moreover, the government’s expansionary fiscal policy stance will likely take on a key role in keeping the economy on a decent growth trajectory”, added Scotiabank.
