Central bank’s forecast called too optimistic
Difference in opinion is widening between the Bank of Korea and private economists about South Korea’s economic forecast. On July 25, the Bank of Korea said the second-quarter gross domestic product grew 0.8 percent from the first quarter of the year. The result was lower than the central bank’s initial expectation of a 0.9 percent expansion and the lowest in five quarters. Slowing growth was mainly due to sluggish construction spending. During the second quarter, construction investment fell 3.9 percent from last quarter, far exceeding the central bank’s forecast of a 1.5 percent contraction. Instead, private consumption and facility investment were pacing steady growth. Despite the won’s steep rise against the U.S. dollar, a 6.3 percent rise in exports also contributed to the steady growth.Lee Kwang-joon, a director of the Bank of Korea, said, "The current situation is seen as a soft patch," or a temporary slowdown when the economy is on upward momentum. "During the second half, a 4.4 percent growth rate may be sustained, and a 5-percent annual growth rate is seen as achievable," Lee said. However, many private economists disagreed with the central bank. Song Tae-jeong, a researcher at LG Economic Research Institute, said, "There is some room for the private construction sector to improve due to orders to repair rain damage." However, Song said, "The Bank of Korea’s forecast is too optimistic as the export environment is significantly worsening." Economists also raised concerns over sustained private consumption, which the central bank hails as a strong foothold for the economy’s health. Oh Seok-tae, an economist of Citibank Korea, said, "In a nutshell, consumption growth without a rise in incomes cannot last for a long time." During the first half, the real gross domestic product and private spending rose 5.7 percent and 4.6 percent, respectively, but the real gross national income gained 1.6 percent. Pay average for city workers rose 6.4 percent last year, but gained 5.9 percent during the first quarter of this year. "The economic slowdown is expected to continue after the second half due to unstable private spending, let alone the export situation," Citibank Korea’s Oh said.
