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Investment banks raise Korea’s growth target for 2 consecutive months

Investment banks raise Korea’s growth target for 2 consecutive months

Posted May. 15, 2017 07:19,   

Updated May. 15, 2017 07:34


Global investment banks have increased their targets for Korea’s 2017 economic growth for two consecutive months. The development comes amid continuous expansion of the nation’s export and growing corporate investment coupled with expectations for the new Moon Jae-in administration’s economic stimulus measure through a large-scale extra budget.

According to the International Finance Center on Sunday, Korea’s growth target for this year projected by 10 global investment banks including Barclays, Goldman Sachs, and Morgan Stanley came to 2.6 percent on average as of end-April, which is a 0.1 percent increase from 2.5 percent projected at the end of March. Global investment banks, which had lowered Korea’s growth targets up until early this year, are raising their projections in March and April in an unusual move.

Nomura Securities, which had presented negative outlook for Korea’s economic growth, has increased its target by a whopping 0.4 percentage points, from 2.0 percent to 2.4 percent. Barclays (2.6 percent), JP Morgan (2.6 percent) and Deutsche Bank (2.5 percent) also raised their targets by 0.1 percentage point each.

Those investment banks cited Korea's export growth and fostering facilities investments, which are backed by global economic recovery and a robust semiconductor market. Korea’s export made a quick rebound of 51 billion U.S. dollars last month, a 24.2 percent increase year-on-year. The figure represents the second highest ever after the record set in October 2014 (51.6 billion dollars).

The prediction that the Moon Jae-in administration will seek to shore up the economy through an extra budget of 10 trillion won (9 billion U.S. dollars) sooner than later has also positively affected their outlook. “Sentiment for domestic consumption will improve thanks to easing of political uncertainty following the presidential election and the government’s earmarking of an extra budget in the second half,” said the investment banks.

A number of global investment banks predict that the Bank of Korea will keep its benchmark interest rate unchanged through this year. Their analysis suggests that the central bank will run a monetary policy focused on stabilizing finances due to continuously strong expansion of household debts despite high expectations for economic recovery. “When the consumer price index growth exceeds the target of 2 percent and the U.S. benchmark interest rate reaches 1.75 – 2 percent next year, the Bank of Korea will start raising the benchmark rate,” Nomura forecast.

Im-Soo Jeong imsoo@donga.com