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S. Korean economy gripped by fears of double-dip recession

South Korean economy is facing an uphill battle ahead as individuals have cut back on expenditure and businesses turn against investment. This year, the government took a series of measures to jumpstart the economy, including monetary stimulus and deregulations, but these measures did not pay off. Some even predict that as things stand now, the nation’s economy could fall into double dip recession where the economy slows down after a brief recovery.

The Korea Development Institute (KDI) said Tuesday it revised down its gross domestic product (GDP) growth forecast for this year 0.2 percentage points from the previous 3.9 percent (under the new standard) to 3.7 percent.

“Consumption remained sluggish in the first quarter and will likely slow down further on the Sewol ferry disaster, the KDI explained. By quarter, the figure will likely grow 3.7 percent in the second quarter, 3.6 percent in the third quarter and 3.5 percent in the fourth quarter, decelerating over time, it expected.

A KDI official noted, “growth outlook for 2015 will likely settle at a mere 3.8 percent, down 0.2 percentage points from late last year’s outlook.” The number is a startling 0.4 percentage points lower than the Bank of Korea’s 4.2 percent, heralding gloomy outlook for next year.

The biggest hurdle facing the nations’ economy is far weaker than expected consumption.

The KDI substantially cut this year’s private consumption growth from 3.6 percent presented in the latter half of last year to 2.7 percent.

Consumer sentiment chilled substantially following the Sewol ferry sinking and snowballing household debts put a significant dent on consumption. Korean household debt ballooned 6.4 percent from a year ago to 1,024.8 trillion won ($1.0 trillion) in the first quarter of this year, according to the BOK Tuesday .