Growth forecast cut to 2.7%; rate frozen at 1.25%
By Kim Jae-won
The Bank of Korea (BOK) cut its economic growth outlook for this year to 2.7 percent from 2.8 percent, reflecting slowing exports amid global uncertainties sparked by Britain's decision to exit from the European Union.
BOK Governor Lee Ju-yeol said that the years-long negotiations between the U.K. and the EU over Brexit will add woes to the export-driven Korean economy.
"The Brexit issue will negatively affect the economy in the long term," said Lee at a press conference. "Uncertainties will linger on the markets, during Brexit negotiations."
The BOK's Monetary Policy Board froze its key interest rate at the record low 1.25 percent unanimously, referring to lingering uncertainties in the global economy.
This is the third time that the bank has cut its growth outlook forecast ― to 3 percent from 3.2 percent in January, to 2.8 percent in April and 2.7 percent this time.
The country's economy is falling deeper into a low growth trap, analysts said. Most private economic institutes have also rushed to cut their growth outlook.
BOK chief Lee also painted a bleak outlook for the nation's potential economic growth rate, raising the possibility of potential growth falling below 3 percent.
"If the pace of the economic slowdown continues, there is a possibility that the country's potential growth rate could fall below 3 percent," Lee said.
This is the first time that the central bank governor has hinted that the maximum growth rate the country could attain without fanning inflation could fall below 3 percent.
The seven-member rate-setting committee agreed to keep its accommodative monetary policies while carefully monitoring key issues, such as increasing household debt, impacts of Brexit and government-led corporate restructuring.
Lee expressed concerns that household debt will continue to increase due to record low interest rates.
The BOK said that the economy is rebounding from its poor performance in the first quarter, but the pace will slow in the second half due to increasing uncertainties at home and abroad.
The central bank also cut its forecast on the nation's economic growth next year to 2.9 percent from 3.0 percent.
Private consumption is expected to grow 2.3 percent this year, according to the BOK, contributing to the overall growth while exports and imports are estimated to grow 0.9 percent and 0.3 percent, respectively, far below average economic growth.
But, economists painted a gloomier outlook than the BOK, saying the central bank is still too optimistic in its forecasts for Asia's fourth-largest economy. LG Economic Research Institute expects GDP growth at 2.5 percent for this year, down from 2.6 percent last year, as exports are expected to fall ― continuously hit by a sluggish global economy.
"Overseas demand is expected to be squeezed further in the second half compared to the first half as all of the U.S., EU and China are losing their growth steam," the private institute said in a report. "Global trading volume increased less than 1 percent in the first half, and such a trend is expected to continue in the second half."
In the afternoon, BOK chief Lee hosted an unusual press briefing on the nation's extremely low inflation rate, vowing to achieve its target of 2 percent in the mid-term. Korea's consumer price index increased 0.8 percent in June from a year ago, reaching less than 0.5 percentage points of its target for six straight months.
By Kim Jae-won
 |
BOK Governor Lee Ju-yeol said that the years-long negotiations between the U.K. and the EU over Brexit will add woes to the export-driven Korean economy.
"The Brexit issue will negatively affect the economy in the long term," said Lee at a press conference. "Uncertainties will linger on the markets, during Brexit negotiations."
The BOK's Monetary Policy Board froze its key interest rate at the record low 1.25 percent unanimously, referring to lingering uncertainties in the global economy.
This is the third time that the bank has cut its growth outlook forecast ― to 3 percent from 3.2 percent in January, to 2.8 percent in April and 2.7 percent this time.
The country's economy is falling deeper into a low growth trap, analysts said. Most private economic institutes have also rushed to cut their growth outlook.
BOK chief Lee also painted a bleak outlook for the nation's potential economic growth rate, raising the possibility of potential growth falling below 3 percent.
"If the pace of the economic slowdown continues, there is a possibility that the country's potential growth rate could fall below 3 percent," Lee said.
This is the first time that the central bank governor has hinted that the maximum growth rate the country could attain without fanning inflation could fall below 3 percent.
The seven-member rate-setting committee agreed to keep its accommodative monetary policies while carefully monitoring key issues, such as increasing household debt, impacts of Brexit and government-led corporate restructuring.
Lee expressed concerns that household debt will continue to increase due to record low interest rates.
The BOK said that the economy is rebounding from its poor performance in the first quarter, but the pace will slow in the second half due to increasing uncertainties at home and abroad.
The central bank also cut its forecast on the nation's economic growth next year to 2.9 percent from 3.0 percent.
Private consumption is expected to grow 2.3 percent this year, according to the BOK, contributing to the overall growth while exports and imports are estimated to grow 0.9 percent and 0.3 percent, respectively, far below average economic growth.
But, economists painted a gloomier outlook than the BOK, saying the central bank is still too optimistic in its forecasts for Asia's fourth-largest economy. LG Economic Research Institute expects GDP growth at 2.5 percent for this year, down from 2.6 percent last year, as exports are expected to fall ― continuously hit by a sluggish global economy.
"Overseas demand is expected to be squeezed further in the second half compared to the first half as all of the U.S., EU and China are losing their growth steam," the private institute said in a report. "Global trading volume increased less than 1 percent in the first half, and such a trend is expected to continue in the second half."
In the afternoon, BOK chief Lee hosted an unusual press briefing on the nation's extremely low inflation rate, vowing to achieve its target of 2 percent in the mid-term. Korea's consumer price index increased 0.8 percent in June from a year ago, reaching less than 0.5 percentage points of its target for six straight months.
