SEOUL, July 18 (Xinhua) -- South Korea's government on Wednesday revised down its 2018 growth forecast for the economy on worry about the U.S. protectionist moves that can trigger a global trade war.
Real gross domestic product (GDP), adjusted for inflation, was forecast to grow 2.9 percent in 2018, down from the estimate of 3.0 percent expansion announced six months earlier, according to the Ministry of Strategy and Finance.
It was on par with the growth estimate of the Bank of Korea (BOK), which also lowered its forecast by 0.1 percentage point earlier this month. The South Korean economy expanded 3.1 percent last year.
The ministry picked the U.S. protectionist moves as the main reason for the downward revision. Higher U.S. import tariffs would encourage other foreign governments to retaliate against U.S. companies, boosting trade conflict and reducing global trade.
The South Korean economy, which depends heavily on exports for growth, was expected to be hit hard by the trade conflict, especially in the second half of this year.
Exports were forecast to climb 5.3 percent this year, much lower than a 15.8 percent expansion last year.
Outlook for import growth was set at 11.2 percent amid rising crude oil price. It was revised up from a 6.0 percent gain estimated six months earlier.
Consumer price inflation was projected at 1.6 percent, down from the previous forecast of 1.7 percent. Despite the expensive crude oil, farm goods prices were predicted to stay low.
The ministry also selected higher crude oil price as a downside risk factor to the economy as it can restrict growth of export and private consumption in the second half.
Private consumption, the other main pillar for growth, was projected to rise 2.7 percent this year, down from a 2.8 percent increase estimated six months earlier.
The downward revision reflected the worsening of labor market conditions. The ministry slashed outlook for a year-over-year job increase on average to 320,000 from the previous estimate of 180,000.
The year-over-year job growth hovered around 100,000 for five months through June amid the slowdown in services industry and the ongoing restructuring of shipbuilders and shipping firms.
Facility investment was expected to grow 1.5 percent in 2018, sharply down from the prior estimate of 3.3 percent. In 2017, facility investment jumped 14.6 percent.
Minister of Strategy and Finance Kim Dong-yeon, who doubles as deputy prime minister for economic affairs, told a press briefing that the government will maintain an expansionary fiscal spending stance amid the rising economic uncertainties.
Trade conflicts between major economies and the normalization of global monetary policy positions could worsen uncertainty, leading to slower growth and weaker job growth, the deputy prime minister said.
To bolster consumer spending, the government will temporarily cut consumption tax on new car purchase from the current 5 percent to 3.5 percent by the end of this year.
The government will double the number of recipients of the earned income tax credit (EITC) and triple the amount of tax refunds for low-income households to expand the social safety net and boost spending among low-income earners.
