South Korea cuts growth outlook

Consumer spending has been hit by national outpouring of grief

The Sewol ferry disaster in which 304 people died: the tragedy affected the economy. Photograph: AP/Ahn Young-joon

The Sewol ferry disaster in which 304 people died: the tragedy affected the economy. Photograph: AP/Ahn Young-joon

 

The Sewol ferry disaster on April 16th, in which 304 people, mostly teenagers, died, has contributed to a slowdown in economic growth. Consumer spending has been hit by the national outpouring of grief.

Central bank governor Lee Ju-yeol said Asia’s fourth largest economy would expand by 3.8 per cent this year instead of the 4 per cent predicted in April, and was expected to grow by four per cent next year, instead of the predicted 4.2 per cent.

The government is expected to introduce a 3.9 per cent forecast for this year, and one of between 3.5 per cent and 3.7 per cent next year.

The period post-tragedy saw sales of clothes, fuel and food fall, with the tourism, restaurant and leisure industries hardest hit as people stopped going out and schools cancelled outings.

Korea’s biggest exporter, Samsung Electronics, says the rise of the won currency to near six-year highs and a drop in market share for its smartphones, is hitting earnings.

The finance ministry said in its green book that consumption is “not fully improved” and that the overall economic recovery remains “sluggish”.

The slowed growth figure is expected to be included in a second-half economic plan due to be unveiled by incoming finance minister Choi Kyung-hwan.

The ministerial nominee said he would “swiftly” introduce a raft of micro and macro measures to stimulate the economy once he takes office. These will include efforts to stimulate the housing market.

The Yonhap news agency quoted a high-ranking government official as saying that the “already meagre” economic recovery had been hit by the Sewol ferry disaster, among other factors.

“We are taking the current economic situation very seriously.

“It would be inevitable to lower the growth estimate significantly.”

Inflation is expected to be lower, with consumer prices set to increase 1.9 per cent this year, lower than the previously forecast 2 per cent increase.

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