South Korea cuts growth outlook

Bank of Korea says it expects the economy to expand 2.7% as it holds key rate at record low

South Korea’s central bank yesterday cut the country’s growth outlook and kept the key interest rate unchanged at a record low as exports sputters and demand slumps.

The Bank of Korea (BOK) said it expects the economy to expand 2.7 per cent this year, just three months after cutting its forecast to 2.8 per cent.

It also left borrowing costs unchanged at 1.25 per cent as it looks to assess the impact of last month’s reduction — which was the first in a year — as well as newly announced stimulus measures.

Britain’s shock decision to leave the EU last month added to uncertainty for the South’s export prospects, bank governor Lee Ju-Yeol said.

Slow growth

“We believe that growing uncertainty [caused by the British vote] may slow growth of the global economy and trade and eventually impact our economy,” Lee told reporters.

Seoul’s finance ministry cut its own growth outlook to 2.8 per cent from 3.1 per cent last month following the British referendum result and unveiled a 20 trillion won (Dh64 billion, $17 billion) stimulus package.

The South’s economy expanded 2.6 per cent last year — the lowest since 2012.

Yesterday’s revision on the growth outlook came as Asia’s fourth-largest economy struggles with increasing unemployment, mounting consumer debts and falling exports.

Exports, which account for nearly half of the country’s economy, have fallen for 18 straight months. Total household debts had snowballed to more than $1 trillion as of late March, while wages have stagnated and housing prices have continue to rise.

Anti-corruption law

Lee also raised concern over the impact of Seoul’s new sweeping anti-corruption law on domestic spending after it takes effect in September.

“Since the law covers a far wider industries and slaps far harsher punishment than before, we believe that it would ... certainly affect certain industries and overall consumer spending,” he said.

Potential impact of the anticorruption laws played a role in the downward revision of the BOK’s growth outlook, Lee added.