SEOUL, KOREA - The Korea Development Institute has downgraded the estimated economic growth due to the Sewol ferry incident and lackluster consumer spending. It also urged the Bank of Korea not to raise the benchmark interest rate at least for the next six months.

 

On May 27, the state-run economic think tank lowered this year's GDP growth outlook to 3.7 percent from earlier 3.9 percent in its "Economic Outlook for 1H 2014." The growth outlook was even lower than that put out by the Bank of Korea early last month (4.3%). It is the same as its own economic outlook for 2014, announced to be 3.7 percent in November last year, which was equivalent to 3.9 percent according to a new international standard. KDI estimated 2015's GDP to be 3.8 percent, a slight improvement.

 

One of the contributing factors to the downgrade was low consumer spending in the first quarter. The consumer spending was 2.6 percent in the first quarter, an increase from last year's 2.0 percent but still below the economic growth rate. To add insult to injury, the ferry accident broke out to further deepen the recession.

 

A KDI economist said, "Even without the ferry disaster, the record was still lower than we had expected." He commented that the ferry incident is likely to take its toll in the second quarter but the economy will eventually pick up in the second half. "The aftermath of the ferry incident is not going to last any further," the economist assured.