BOK’s Rhee sees softer economic growth closer to 2.2% this year

BANK of Korea (BOK) governor Rhee Chang-yong said economic growth may be closer to 2.2 per cent this year in a downgrade from a previous projection, as policymakers keep a watchful eye on the current health of the economy.

The outlook for South Korea’s economic growth turned less optimistic last week after the central bank reported gross domestic product grew just 0.1 per cent in the third quarter from the previous three-month period, as exports weakened.

The result was well below a 0.4 per cent expansion expected in a Bloomberg survey and prompted BOK officials to flag the potential for revising down their annual growth projection of 2.4 per cent. The central bank lowered interest rates earlier this month as its concerns switched to economic growth while inflation and growth in household debt slowed.

In comments that offer the most specific hint of what the new forecast may be when the BOK holds a policy meeting next month, Rhee told lawmakers on Tuesday (Oct 29) that the economy may expand either 2.2 per cent or 2.3 per cent in 2024. That would still be above growth potential, he added.

Predicting growth for 2025 has become more complicated as exports fell in real terms last quarter, Rhee said. The outcome of the US presidential race, which has implications for trade, and whether China succeeds in boosting its economy are among risks for South Korean exports and growth, he said.

Speculation that Republican nominee Donald Trump may win the US election has fuelled the US dollar while weakening the South Korean currency. Rhee said policymakers are wary of the currency fluctuations, and signalled that authorities may intervene in foreign exchange markets if needed by saying they had enough “ammunition”.

President Yoon Suk-yeol also touched on the won during a Cabinet meeting on Tuesday. Yoon said it is important to respond promptly to prevent changes in foreign exchange rates, supply chains or oil prices from having a negative impact on the economy.

The BOK began its policy pivot by cutting the benchmark interest rate to 3.25 per cent on Oct 11, joining global peers in shifting their focus to safeguarding economic momentum. While most economists expect a hold when the board convenes for another decision in November, speculation has grown over a faster pace of easing since data showed slowing economic growth. BLOOMBERG