Korean economy forecast to face 1%-level growth

By Kim Jae-won The economy is in danger of expanding by less than 2 percent in the third quarter due to shrinking exports and a slowdown in China, analysts said Sunday. Australia and New Zealand Banking Group (ANZ) warned that Asia's fourth-largest economy will grow below 2 percent from July to September, if the nation's exports continue to slump. Korean exports dropped 14.7 percent to $39.3 billion last month from a year ago, hit hard by China's weak economy and low petroleum prices, according to government data released last week. IHS Economics, a U.S.-based market information provider, expected Korea's gross domestic product will increase 2 percent for the three months while a global credit ratings agency Moody's forecast it will reach slightly over 2 percent with 2.1 percent. "Overall, the trade data raises concerns that the Korean economy may be on the verge of contracting. A weaker exchange rate will help arrest the slide in exports but, as still-depressed manufacturing sentiment showed, this is unlikely to be a panacea," said BNP Paribas in a report. The state-run Korean Development Institute (KDI) agreed with the international agencies, saying Korea's economic recovery is weak dragged by poor exports. "We think it will be difficult to see conditions for exports to improve in the short term due to increasing uncertainties in the global economy, including China, and slowing expansion in global trade," said the KDI in its report. In particular, the institute said the worsening export data hit the manufacturers the most. Outbound shipments from manufacturing industry contracted 1.8 percent in July from a year ago, turning around from a 1 percent of increase in June. The government also admitted that economic outlook for the country is cloudy. Finance Minister Choi Kyung-hwan said last week the ministry will cut the nation's growth rate outlook for 2016 to 3.3 percent from 3.5 percent, though he has kept the 3.1 percent outlook for this year. Analysts said the country needs to cut the key interest rate in order to boost the sluggish economy. BNP Paribas said heightened growth concerns will prompt further easing from the Bank of Korea before the end of the year. It said if the U.S. Federal Reserve stands pat in September, a cut could arrive as soon as October. The Fed will decide on its interest rate during its Federal Open Market Committee scheduled for Sept. 16 and 17.  x shosta@koreatimes.co.kr,