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The Bank of Korea (BOK) stated on Monday that South Korea’s economy is expected to experience a mild recovery, despite the slowdown in inflation, yet uncertainties remain due to geopolitical tensions and rising rates in major economies.
In May, the BOK had revised its growth projection for the country from 1.6 percent to 1.4 percent.
The economy saw a 0.6 percent growth in the second quarter of the year, an improvement from the 0.3 percent growth in the first quarter, which followed a 0.3 percent contraction.
“The country’s current account has been in the black since May, and its surplus will be maintained on the back of a recovery in the IT sector,” the central bank said.
The chipmaking sector is showing signs of recovery, with the BOK predicting that adjustments in the sector’s inventory levels will end during the first half of next year.
Bank of Korea (BOK) Gov. Rhee Chang-yong speaks during a parliamentary inspection at the bank's headquarters in Seoul on Oct. 23, 2023. (Yonhap)
The BOK’s growth outlook for the year is likely to be maintained, however, its forecast for next year’s growth will need to be reviewed.
“We forecast a 2.2 percent expansion next year, but it is hard to predict going forward depending on the Chinese economic situation and the Middle Eastern development,” BOK Gov. Rhee Chang-yong said in a parliamentary inspection.
The central bank also said that weak demand-side pressure, coupled with stabilizing prices of farm goods, will help inflation slow down, however, the conflict between Israel and Hamas may reduce the pace of the slowdown in inflation.
Containers are unloaded from ships at a port in the southeastern city of Busan, in this file photo taken Aug. 1, 2023. (Yonhap)
Consumer prices increased 3.7 percent last month from a year earlier, the fastest in five months, driven by higher oil costs and rising prices of some farm goods.
The BOK has predicted inflationary pressure to build up down the road, with inflation expected to stay over 3 percent around the end of the year, far higher than its target rate of 2 percent.
“We had expected inflation to stay around 3 percent before the Israel-Hamas conflict, but the possibility is high that inflation could accelerate a bit down the road,” Rhee said.
For the full year, the central bank expects inflation to be 3.5 percent.
The central bank said Asia’s fourth-largest economy is also still faced with enhanced uncertainties, such as the direction of China’s economy, the unfolding of tensions in the Middle East and the volatility in the global financial market.
Lee said the central bank should “seriously” consider a rate hike if the growing household debt is not curbed.
Household loans extended by banks in South Korea rose for the sixth straight month, led by rising home-backed loans.
Earlier, the BOK chief said it needs to take microeconomic measures first to rein in soaring debt and then interest rate adjustments can be reviewed.
sam@yna.co.kr
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