BOK predicts Q3 growth on track

Korea’s economic growth will climb above 1 percent in September, Bank of Korea Gov. Lee Ju-yeol forecast, bouncing back from near-zero figures in each of the past five quarters.

“Growth in the third quarter is going on the track we anticipated,” Lee said at a press conference with Korean reporters on the sidelines of the G-20 finance ministers and central bank governors’ meeting in Lima, Peru. He cited the central bank’s outlook of 1.1 percent growth, announced in July for the period ending in September.

Recovery in consumption would keep the economy at the targeted growth, Lee said.

Quarterly expansion between April through June was the worst in six years at 0.3 percent, with the country hit hard by contracted consumption in the wake of the outbreak of the deadly Middle East respiratory syndrome, along with falling exports due to the currency devaluations of Korea’s rival exporters like Japan.

When asked if the pace of growth could shrink again in the fourth quarter, Lee said the economy will maintain its current pace through December but said that it will be hard to increase.

“If quarterly growth exceeds 1 percent this quarter, it won’t be easy for the economy to gain more than that in the fourth quarter,” Lee said.

The central bank will make an announcement on Thursday about its growth forecast for 2015, following its earlier cut to 2.8 percent in July.

In terms of the U.S. Federal Reserve’s decision about its rate cut, which many market participants see affecting emerging markets like Korea, Lee said a U.S. rate cut was still unlikely this month.

“Some say the U.S. Fed lost its chance to raise its benchmark interest rate and now they are stuck,” Lee said. “The market sees that the possibility of a U.S. rate hike is low.

“But the U.S. Fed has said so far it would raise rates, so I think they will increase the rate within this year. If they don’t, I think they’ll lose credibility.”

The central banker added, “The best scenario for us is that even if they start [raising rates], they indicate they’ll keep their eyes on [the decision’s] effect on the market.”

On whether Korea’s key policy rate would be trimmed again from its current historic low of 1.5 percent, Lee said, “There is the opinion that quantitative easing is necessary to defuse worries over deflation, but the most desirable way for easing deflation is economic growth.”

Korea’s inflation is a growing worry for policy makers, as it has never been above 1 percent this year.

At a hearing for lawmakers in Seoul on Oct. 5, Lee dismissed anticipation of a further rate cut at the upcoming monetary decision-making meeting this month, saying, “I think differently from that kind of call [a rate cut].”

Lee also mentioned the growing debt at Korean corporations.

“Although the financial statements of overall companies are not that bad, those reaching their limit [on default] are a problem,” he said. “Corporate loans could bring a big loss, and it is also connected to other firms, so if a company collapses, it could result in a domino effect.”

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]