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Bank of Korea Cuts Growth Outlook

Sale signs at a shopping district in Seoul, January 13.Sale signs at a shopping district in Seoul, January 13.

South Korea’s central bank has trimmed its forecast for the country’s growth in 2017 partly due to the fallout from a massive influence-peddling scandal.

Bank of Korea said Friday that the economy will likely expand 2.5% this year, slower than its October prediction of 2.8% growth. It said Asia’s fourth-largest economy will grow 2.8% in 2018, AP reported.

The bank cited weak private consumption because of meager income growth, heavy household debts and the repercussions from the scandal.

Parliament impeached President Park Geun-hye in December and the Constitutional Court is considering whether she should be removed from power permanently for allegedly letting a long-time friend secretly meddle in state affairs.

Uncertainties over the next presidential election have left companies reluctant to increase investment and hiring.

Bank of Korea Gov. Lee Ju-yeol told reporters that economic policy should focus on encouraging consumer spending.

South Korea’s shipping and shipbuilding companies have shed tens of thousands of jobs to stem heavy losses. Youth unemployment has risen, pushing the number of jobless among 15 to 29-year-olds to one million people for the first time last year. Lee said the grim job market was hurting consumer sentiment.

Despite slowing growth, inflation is expected to rise to 1.8% this year from 1% in 2016, partly due to higher oil prices.

Bank of Korea kept its policy rate at 1.25% this month, keeping the benchmark rate at a record low for a seventh straight month.

South Korea’s export-led economy likely grew by 2.7% in 2016, slightly above the latest government estimate, and felt little impact from the impeachment of its president, the nation’s finance minister told Reuters in an interview on Wednesday.

A bigger risk to the economy, Finance Minister Yoo Il-ho said, was the “uncertainty from abroad,” including the incoming administration of US president-elect Donald Trump.

Yoo, on a visit to New York and Boston to meet with investors and bankers to gauge their views on South Korea—but also to gain insight into the US political landscape—said the previously unreported gross domestic product revision could indicate solid growth for the first quarter of the new year.

“We expected that the final revision of our estimation of last year’s growth rate was 2.6%, down from 2.8%. It turned out to be 2.7% at the end of ‘16,” Yoo said.

“Which in turn means there is a possibility that the economy in Korea is not so weak as we expected, at least in the first quarter, judging from this 0.1% higher growth we expected than the final revised value,” he said.

 

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