S.Korea's c.bank slashes 2019 growth outlook on trade row with Japan

Source: Xinhua| 2019-07-18 12:07:05|Editor: Shi Yinglun
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SEOUL, July 18 (Xinhua) -- South Korea's central bank on Thursday slashed this year's growth outlook for the export-driven economy on rising worry about trade row with Japan.

Growth outlook for real gross domestic product (GDP), adjusted for inflation, was revised down to 2.2 percent from 2.5 percent estimated three months earlier.

It was gloomier than the government's estimate. Earlier this month, the finance ministry lowered this year's growth forecast by 0.2 percentage points to a range of 2.4-2.5 percent citing external uncertainties.

Outlook for headline inflation was cut to 0.7 percent from 1.1 percent forecast three months ago. The Bank of Korea (BOK) set its mid-term inflation target at 2 percent.

The downward revision came after the BOK unexpectedly lowered its benchmark interest rate by 25 basis points to 1.50 percent. It marked the first rate cut in about three years since June 2016 when the bank cut the policy rate to an all-time low of 1.25 percent.

BOK Governor Lee Ju-yeol told a press conference after the rate-setting meeting that Japan's export restrictions, if expanded, would have a significant effect on the South Korean economy, saying the export curbs were reflected in the bank's assessment on macroeconomic situations.

Japan slapped stricter regulation early this month on its export to South Korea of materials vital to produce memory chips and display panels that influence the manufacturing of smartphones, TVs and other tech products.

Japan's export restrictions were forecast to add uncertainties to South Korea's export, which has struggled with the downturn in business cycle of the global semiconductor industry.

Export, which accounts for about half of the economy, kept sliding for the seventh consecutive month through June.

Lee said the detailed effect from Japan's export curbs was currently unpredictable, noting that it would be significant to make efforts to minimize the effect and resolve the trade spat.

The top central banker said this month's rate cut narrowed down the BOK's room for more accommodative monetary policy though the room remained, asking for a more actively expansionary fiscal policy and an industrial restricting for improved productivity.

Expectations ran high for the U.S. Federal Reserve to lower its benchmark rate late this month, reducing burden for the BOK's more accommodative monetary policy.

The BOK statement said that the slowdowns in export and facility investment deepened further despite a moderate growth in private consumption, forecasting that the export and facility investment would recover later than originally expected.

Industrial production shrank 0.5 percent in May from a month earlier, after growing for the past two months. Facility investment also turned downward in May in three months.

The BOK said growth potential for the economy was estimated at a range of 2.5-2.6 percent, down 0.3 percentage points from the previous estimate. The International Monetary Fund (IMF) set its estimate for South Korea's growth potential at a range of 2.6-2.7 percent.

The BOK was expected to take a wait-and-see stance for the time being as one of the seven policy board members dissented from the rate-cut decision. The next rate-setting meeting was scheduled for late next month.