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KERI Bulletin

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KERI Bulletin

KERI Economic Bulletin (July. 2016 No.84)

16. 7. 26.



Korea’s 2H economic growth, dampened to 1.9% owing to the Brexit uncertainties

The projected growth rate of Korea had been modified to 2.3%, lowered by 0.3%p compared to the previous figure. From the beginning of this year, external headwinds had been strong, induced by economic slowdown of China and opened possibility of the US Fed’s base rate hike. In the meantime, the unexpected Brexit broke out; thus we expect that Korea’s 2H growth to be adjusted downwards to 1.9% which is lower than the 1st half (2.7%). Partially, domestic policies to revert the economy up could partially offset the economic slowdown, but only to a confined degree due to the predominance of majority-opposition party and unsettled industry restructuring policies.

Consumer price, leveled down to 1.2% from the former forecast as 1.4%

The upbeat of USD/KRW and international crude oil price would incur the rise of consumer price for the 2nd half, although the overall yearly CPI is expected to lower down than the former forecast by 0.2%p. Likewise, current account surplus is projected to decline by a small margin to US$99.1 billion from US$105.9 billion in 2015. The maintenance of current account surplus stems from the lingering recession type surplus; this year’s export and import losses are forecasted to be -4.6%, -5.4% respectively. USD/KRW is expected to show a rising trajectory as 1,191 won owing to the heightened international financial market volatility after the Brexit event. The market interest rate (Corp, AA-, 3yr) is on a declining tendency due to uncertainties of the US Fed's interest rate decision as well as the BOK's intention on the base rate cut.

Korean economy, with high probability of re-entering its downturn phase, is in need of supplementary budget plan and other types of pump-priming policies

An inauspicious of potential growth rate is foreseeable as long term trend of real GDP has been around 8.9% since the 1st quarter of 2013, which is only 60% recovery level of the average value between 1996 and 2013. Further, with consideration of economic cycles of Korean economy, it shows signs of sluggish growth although it seems like Korea has overcome the economic hurdles, derived from the 1st quarter of 2013. As a result, we highly recommend short term stimulus to be carried over with long term policies as well to construct a sound economic structure.

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