IMF warns of growing downside risks to global growth
By Park Hyong-ki
|Finance Minister Hong Nam-ki speaks to reporters in Washington, D.C., Saturday. Courtesy of Ministry of Economy and Finance|
The move comes amid growing fears that the already sagging Korean economy could bear the brunt of the global slowdown.
Hong told reporters on the sidelines of the G20 finance ministers' meeting that the global economy faces a downside risk in the latter half of this year, and small- and medium-sized exporters will need support.
The minister did not specify particular sectors for which it will devise measures, but mentioned its forecast for exports of semiconductors remains cloudy.
Hong said it will also prepare to spend 7 trillion won ($6.5 billion) extra to rebuild the region hit by a forest fire, tackle fine dust and create jobs.
"We will counter the downside risk by preparing such measures to achieve 2.6 percent growth this year," Hong said.
"We need to revitalize the economy in the latter half so that it can fully rebound along with other G20 economies, which forecast they may pick up next year."
The urgency for another measure follows a change in the government's view on the economy ― from positive to negative amid a triple dip in industrial output, private investment and consumption.
Also, exports driven by weak semiconductors have fallen for four consecutive months, dropping over 8 percent in March year-on-year.
Last month, the finance ministry was optimistic that there will be "growth momentum" as sentiment slightly improved. But last week, the ministry's Green Book that provides an economic overview said the economy is in "a sluggish state" amid a decline in investment, production and exports.
The International Monetary Fund (IMF) also reiterated in Washington that Korea faces "headwinds," and it would be hard for it to achieve 2.6 percent without the supplementary budget.
The IMF warned that the world economy is exposed to downside risks citing trade tensions, policy uncertainty, geopolitical risks and a sudden sharp tightening of financial conditions against a backdrop of limited policy space.
"The global expansion continues, but at a slower pace than anticipated in October. Growth is projected to firm up in 2020, but risks remain tilted to the downside," it said in its communique following the 39th annual meeting.
Analysts say the economy could get back up in the latter half through various policy measures, but the trade conflict between the United States and China remains an obstacle.
"It could revive toward the year's end as the government is responding with a set of policies. But the most sticking point is whether the trade conflict would be resolved," said Kim Doo-un, an economist at KB Securities.
The market is now watching what the Bank of Korea (BOK) will do at its monetary policy meeting this Thursday.
Analysts expect the BOK will be preoccupied with whether it will again revise down its growth projection from 2.6 percent it issued in January, given the central bank has cut it numerous times amid a weak outlook.
The BOK slashed it by 0.1 percentage points each in July and October last year, from 2.9 percent projected in January 2018. It cut it again to 2.6 percent for this year in January 2019.
"Whether to cut the growth or not will be the most pressing issue at its policy meeting," said Oh Chang-sob, an analyst at Korea Investment & Securities.