Roundup: S.Korean gov't slashes 2017 economic growth outlook to 2.6 pct

South Korean government on Thursday slashed its 2017 economic growth outlook by 0.4 percentage points, bolstering concerns about the protracted low-growth trend, a government report showed on Thursday.

Next year's growth forecast was cut to 2.6 percent from 3.0 percent unveiled six months earlier, according to the Ministry of Strategy and Finance. The economic expansion below 3 percent is forecast to last for three years in a row.

Real gross domestic product (GDP) expanded 3.3 percent in 2014, but the growth rate declined to 2.6 percent in 2015. The ministry set this year's growth forecast at 2.6 percent.

The downward revision for next year stemmed mainly from the expected slowdown in private consumption amid the expected interest rate hikes in the United States.

Confidence among consumers already worsened on political unrest caused by the impeachment of President Park Geun-hye. Consumers refrained from spending money on worries about the absence of economic control tower.

The U.S. Federal Reserve raised its benchmark interest rate by a quarter percentage point in December, indicating three rate increases in 2017. It would put pressure on the Bank of Korea (BOK) to lift its record-low policy rate.

The BOK lowered its benchmark rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June this year, encouraging households to purchase new homes with borrowed money.

The record-breaking household debts will weigh down further on private consumption given that debt-servicing burden among South Korean households would increase in accordance with the expected higher borrowing costs from higher U.S. interest rates.

The ministry's growth outlook for consumer spending was set at 2.0 percent in 2017, lower than the estimated 2.4 percent expansion in 2016.

Forecast for job creation was estimated to grow 260,000, falling below 300,000 amid the ongoing restructuring in the shipbuilding and shipping sectors, which have struggled to cut jobs and reduce facility on lower global trade and lackluster global recovery.

Weaker labor market conditions would weaken consumer spending further. Outlook for jobless rate next year was put at 3.9 percent, slightly higher than this year's 3.8 percent.

To tackle the possible consumption cliff referring to an abrupt drop in private consumption, the government will frontload about 60 percent of 2017 budget in the first six months, while positively considering a supplementary budget plan early next year.

Exports, which account for about half of the export-driven economy, is forecast to rebound 2.9 percent next year from an estimated 6.1 percent reduction this year on higher prices of semiconductor that has recently prevented a steep fall in overall exports.

South Korea's exports to the Middle East and Latin American countries are predicted to grow next year, but those to the United States and China, the country's top two trading partners are forecast to stay weak.

Outlook for 2017 current account surplus was 82 billion U.S. dollars, compared with this year's 94 billion dollars on the expected faster increase in imports than exports.

Growth outlook for facility investment was set at 2.8 percent in 2017, turning around from this year's 3.3 percent reduction.

Construction investment, which was estimated to have jumped 10.8 percent this year on households' rush to buy new homes with borrowed money, was forecast to grow 4.0 percent in 2017 on higher borrowing costs.

The ministry set its 2017 forecast for consumer price inflation at 1.6 percent, higher than this year's 1.0 percent on the estimated price increase in crude oil and cereal. Endit