July 3, 2019 / 12:12 AM / 16 days ago

S.Korea cuts growth views as trade falls on U.S.-China trade war

SEJONG, South Korea, July 3 (Reuters) - South Korea on Wednesday cut this year’s economic growth target to what would be a 7-year low as the prolonged U.S.-China tariff war hit global demand, although the revised projections were above the market’s estimates.

The worsening global outlook also prompted the government to slash its projections for exports for Asia’s fourth largest economy in a sign policymakers will likely need to do more to prop up slumping demand.

The government now aims to achieve growth of between 2.4% and 2.5% this year, slower than 2.6 to 2.7% range projected in its previous forecast in December last year, the finance ministry said in a scheduled mid-year update of its economic forecasts.

In a dramatic change of its views, the government now expects exports to shrink by 5% for the whole of this year, giving up an earlier projection for 3.1% growth.

Along with the downgrade of its views on the gross domestic product growth, the ministry also lowered forecasts on most other major indicators including private consumption, capital investment and construction spending.

“We’ve lowered the forecast as uncertainties over the trade war remain high amid the slowing global economy, while a recovery in the semiconductor sector that accounts for 20% of total exports is being delayed,” Lee Eog-won, director-general of the ministry’s economic policy bureau, told a briefing.

South Korea’s economy grew 2.7% in 2018 and the new growth target would be the slowest since a 2.4% expansion in 2012. The new forecast however was higher than the that expected by global investment banks, which were as low as 1.4% in some case.

The central bank cut its growth forecast for this year in April to 2.5% from 2.6%, and is due to revise the projection again on July 18, when the Bank of Korea could lower interest rates as well as its growth forecast.

While lowering the growth target, the finance ministry stopped short of drafting a massive extra spending programme as a 6.7 trillion won ($5.74 billion) spending plan has been waiting for approval at the parliament.

The cooling global demand amid the prolonged U.S.-China trade frictions hit South Korea’s economy especially hard as exports, the main engine of growth, have been falling in each of the past seven months over a year earlier.

The finance ministry sharply lowered its forecast for this year’s inflation to 0.9% from the previous 1.6%, compared with the central bank’s target set at 2% and underscoring a stronger case for the Bank of Korea to reduce interest rates.

Reporting by Joori Roh; Editing by Choonsik Yoo and Sam Holmes

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