News ID: 254247
Published: 1050 GMT June 14, 2019

S. Korea finance minister: Downside risks looming larger

S. Korea finance minister: Downside risks looming larger
WSJ
South Korean Finance Minister Hong Nam-ki

South Korea's economy is increasingly facing downside risks amid the trade tussle between the United States and China, the country's chief economic policymaker said on Friday, stressing the need to take quick and bold actions to buttress the economy.

"There are growing calls to take bolder actions as the economy is faced with increased downside risks," Finance Minister Hong Nam-ki said in a meeting with heads of private economic think tanks, Yonhap wrote.

Exports have been on a constant decline, and domestic demand is also losing steam, he said.

"Adding to dire situations for exports, the uncertainty is also heightening in the face of the growing trade dispute (between Washington and Beijing)," Hong said.

The minister said the government will roll out and implement economic policies aimed at boosting economic vitality in the future, while supporting innovation-led growth as well.

His ministry is set to unveil the second-half economic policy road map next month.

A series of data recently released show that Asia's fourth-largest economy, already reeling from weak business spending and a slump in exports, is set to lose further steam down the road, while most private institutes slashed their economic outlook for the economy.

South Korea's economy unexpectedly backtracked 0.4 percent from three months earlier in the first quarter, marking the slowest growth in more than a decade.

Its exports have also been on the wane for six consecutive months, with shipments to China, the world's single largest importer of South Korean goods, dipping since November.

The Bank of Korea (BoK) has slashed its 2019 growth outlook for the local economy to 2.5 percent from the 2.6 percent forecast in January.

The country's finance ministry is maintaining its growth estimate of between 2.5 percent and 2.6 percent but widely expected to trim it next month when it unveils the second-half economic policy road map.

In what could be a shift from his earlier commitment to standing pat, Bank of Korea Gov. Lee Ju-yeol hinted at an easing policy early this week, saying the trade tension between the world's top two economies underscores the woes of the economy, in what could be a shift from his earlier commitment to stand pat.

In the past few months, Lee had ruled out the possibility of a rate cut, sticking to the belief that the country's economy will gather pace during the second half of the year, which many claim is too optimistic in the face of the flaring-up trade friction between the world's top two economies.

The central bank decided to keep the policy rate frozen at 1.75 percent last month in its first split vote at least since November when the board raised the benchmark rate by 25 basis points.

The central bank is scheduled to hold its next rate-setting meeting in mid-July.

Many believe the central bank will begin considering lowering the key rate in the last quarter or only when the US Fed lowers its own rate first.

Already the US policy rate sits higher than that of South Korea, in a 2.25-2.5 percent range, which makes the US a more attractive market than South Korea, creating a constant source of hard currency outflow from Seoul.

Hong also urged local governments to implement their budget spending as planned to help the economy grow at a decent pace.

The government frontloaded its budget spending with the goal of implementing 61 percent of its annual budget in the first six months of the year.

The minister also said the 6.7 trillion-won ($5.6 billion) extra budget should be hurried through parliament as it could play a vital role in boosting the economic growth.

The government submitted the supplementary budget bill to the National Assembly in April for approval, but it remains unclear when South Korea's parliament will vote on the extra budget bill due to a political standoff.

   
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