Governor points to downside risks on S. Korea’s growth
SEOUL: Downside risks in South Korea’s economy are outweighing upside ones, making it increasingly hard for the central bank to maintain its growth forecast that was already cut earlier this year, according to governor Lee Ju-yeol.
The Bank of Korea (BOK) in July reduced interest rates for the first time in three years and lowered its growth projection to 2.2% after assessing the impact of the Us-china trade war on South Korea, which relies heavily on exports such as memory chips for expansion.
Even though the US and China are set to resume trade talks, a slowdown in the global economy is likely to persist and it would be some time before demand for memory chips picks up again, Lee told reporters.
“It will be tough to achieve the 2.2% growth projection,” Lee said. “Downside risks have been bigger than upside risks in the two months since our July forecast.”
South Korea’s economy is expected to expand 2% this year, the slowest pace since the global financial crisis, according to a Bloomberg survey of economists. Exports, the biggest growth driver, are headed for a 10th monthly decline, while consumer prices in August failed to gain for the first time ever.
Inflation would probably be below zero for “a couple of months,” Lee said, dismissing concerns about deflation as “excessive.” He blamed a potential negative reading for this month partly on the base effect from higher-than-usual food prices last year.
The central bank maintained an “accommodative” stance and would look at “every set of data possible” until the next rate decision scheduled for Oct 16, Lee said.
The Us-china trade spat and memory-chip exports, which account for roughly one fifth of overseas shipments, are the two most important factors he’s looking at, he said.