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Think tank slashes growth outlook for 2016

All News 16:00 April 14, 2016

SEOUL, April 14 (Yonhap) -- A South Korean think tank on Thursday slashed its growth outlook for Asia's fourth-largest economy this year, citing a prolonged slump in exports and slowing consumer spending.

The Korea Institute of Finance (KIF) said the South Korean economy was expected to grow 2.6 percent this year, down from a 3-percent expansion forecast six months earlier.

"The growth in consumer spending is expected to slow down in the latter half of the year as the effect of policy measures wears off, while the increase in facility investment is expected to remain at a level below that of last year amid a continued slump in exports," the think tank said in a press release.

South Korea's exports have dipped every single month since the start of 2015, with overall outbound shipments in the first three months of the year plunging 13.1 percent from the same period last year.

The KIF also predicted slower growth in consumer spending from a year earlier.

It forecast that domestic consumption will expand 1.8 percent in 2016, compared with an estimated 2.2 percent on-year rise in the previous year.

"The local economy is expected to grow 2.9 percent in the first half of the year partly on a rise in consumption stemming from a base effect created the outbreak of the Middle East Respiratory Syndrome (MERS) in 2015, but the economy is expected to grow 2.2 percent in the second half when such an effect will disappear, along with the effect of pump-priming measures," it said.

The KIF said additional policy measures may be necessary, if possible, to help bolster growth, but noted the failure of such measures may cost dearly.

"If the effects of additional financial and monetary policies are deemed large with the cost of such measures deemed desirable, it will be appropriate to immediately employ such measures," it said.

"However, under current conditions where high uncertainties at home and abroad may limit the effect of such measures while they may seriously undermine the country's fiscal soundness and financial stability, a decision to employ such measures needs to be made very carefully," it added.

Bank of Korea Gov. Lee Ju-yeol earlier said current conditions facing the local economy made positive effects of a monetary policy, or a rate cut, nearly unthinkable, while making the possible negative effects of a rate cut a certainty.

The central bank, too, is scheduled to offer its latest growth outlook next week.

The top central banker, however, has already hinted at a possible reduction, saying, "We set our growth outlook for this year at 3 percent at the beginning of the year, but now I believe there is a possibility that the actual growth rate may fall short of the forecast announced earlier."

In a related development, the International Monetary Fund has lowered its forecast for South Korea's economic growth this year to 2.7 percent from the 3.2 percent expansion predicted in October.


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