The Bank of Korea has lowered its outlook on South Korea's economic growth this year to 2.6%. The bank said the growth rate is still within the potential level but also hinted at a possible dip in potential growth itself from its previous forecast.
The nation's central bank expects the domestic economy to grow 2.6% this year. Its last forecast in October was 2.7. 3 months has passed since, and the outlook is lowered. According to the BOK, economic growth in major economies including the U.S. has weakened while global risk factors have increased over the US-China trade war and the Brexit situation. The central bank also lowered its growth forecast in the number of employed people by 20-thousand to 140-thousand for this year. The bigger problem is that the economy's potential growth rate is slipping. Potential growth refers to the expansion rate that can be achieved by injecting all available resources such as labor and capital within the scope that inflation doesn't rise. It indicates the soundness of economic fundamentals. Two years ago, the BOK estimated potential growth at between 2.8 to 2.9%. Now it's hinting this could have dropped.
[Soundbite] Lee Ju-yeol(Governor, BOK) : "Given the falling potential growth rate, economic growth of 2.6% doesn't diverge significantly from its potential level."
This implies that expectations may need to be lowered after the Korean economy has steadily posted around 3 percent growth since recording 2.3% in 2012.
[Soundbite] Prof. Kim Young-ick(Sogang Univ. School of Economics) : "Korea's potential growth continues to drop as the labor force diminishes, capital growth slows while productivity remains consistent. If the potential level falls, this inevitably lowers the actual growth rate."
Meanwhile, as the market had expected, the BOK froze its key rate at 1.75% for January.