The government is betting on the further acceleration of the economy following faster-than-expected growth in the first quarter, but whether it will turn out as planned is questionable due to multiple downside risks, according to analysts, Monday.With reference to the OECD’s revised economic outlook for Korea last week, Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok said the government is also considering revising the country’s gross domestic product (GDP) estimate to around 2.6 percent for 2024.“I don’t think financial organizations (in and outside Korea) will be too different from the OECD’s estimate,” he said.The OECD’s outlook was up from its previous projection of 2.2 percent, which was also estimated by the finance ministry as well as the Bank of Korea (BOK).Under the circumstances, Korea’s quarter-on-quarter GDP growth in the January-March period turned out to be 1.3 percent as stated in a BOK report released on April 25.With the quarterly performance beating expectations, this fueled optimism on the government’s path to achieve economic revitalization. Nevertheless, experts warned that downside risks in and outside the country are not likely to go away easily, and may become more complicated to resolve.The risks can have a cascade effect, such as the U.S. Federal Reserve’s extended rate pause, which can delay the BOK’s rate cut to a costly borrowing rate and possibly offset the government’s spending to boost the economy.
In terms of private spending, domestic manufacturers may not enjoy a spillover effect of an increase in spending as consumers buy goods from abroad to save money in the middle of persistently high inflation.“The effectiveness of the government’s spending will diminish at a greater pace if the Fed continues to postpone its rate cut,” said Shin Yong-sang, a senior researcher at the Korea Institute of Finance.He was referring to the Fed’s rate pause for the sixth consecutive time last week in the middle of a robust American economy, which in turn lowered global market expectations for a possible rate cut in June.The Fed’s measure also heightened speculation over a delay in the BOK’s possible rate at 3.5 percent.This rate is the the highest since December 2008 and the rate cut was considered as a precondition to boost spending and spur the economy.In particular, the government frontloaded 65 percent of its 2024 budget in the first half, with the expectation that a spillover effect could be felt across society in the second half when the BOK was anticipated to lower the rate.A twin engine of growth, private spending gained 0.8 percent from the previous three months in the first quarter and marked the highest growth rate in 27 months.However, Choi Kwang-hoon, an eBest Investment & Securities analyst, warned that such growth “does not necessarily result in the profitability of domestic manufacturers due to inflation.”Citing the BOK data, he noted that household spending in Korea shrank 0.3 percent quarter-on-quarter while spending outside the country jumped 16.2 percent quarter-on-quarter.“Consumers are buying cheaper goods on overseas online malls, and against this backdrop, tackling inflation will be crucial for domestic manufacturers to 메이저 benefit from increased spending,” Choi said.