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South Korea CB May Cut Growth Outlook Again

South Korea CB May Cut Growth Outlook AgainSouth Korea CB May Cut Growth Outlook Again

The Bank of Korea is expected to lower its growth outlook again in the coming months due to an economic slowdown on weak employment and consumption, analysts said Monday.

They expect that worsening economic data will make it more difficult for the central bank to move its rate upward as any hike could further hurt business and consumer confidence, Yonhap reported.

Lee Mi-seon, an analyst at Hana Financial Investment, forecast that the central bank will revise down its growth projection in October when the policy board convenes for its rate decision.

It readjusted its forecast from 3% to 2.9% in July. The board has two more meetings left in October and November.

“A revised growth projection expected next month would warrant the BoK to maintain its key rate in October and November,” said Lee.

The last time the central bank raised the rate by 0.25 percentage points to 1.5% was in November 2017. The BoK’s policy board kept it at 1.5% last month, with only one of the seven board members voting for a hike.

The outlook for economic growth has become more downbeat after the BoK announced last week that the nation’s gross domestic product grew 0.6% in the second quarter from a quarter ago, down 0.4 percentage points from the previous quarter.

With growing risks stemming from poor job data and the trade dispute between the United States and China, the BoK is left with very little room for maneuver, the analysts noted.

It will, however, likely leave open the possibility of slightly increasing its interest rate as it indicated in August that Korea is not going to deviate too much from its course toward reaching its growth potential this year, they added.

Also, the central bank will have to consider the widening rate gap between it and the US Federal Reserve, which is projected to raise its interest rate twice in the latter half.

“Given the economic circumstances, it would be appropriate for the BoK to lower its rate. But it will not be able to do it considering the Fed’s hikes,” said Kim Doo-un, an analyst at KB Securities.

The circumstances are decreasing corporate investment and employment. The country created only 5,000 jobs in July.

The BoK indicated it would have to further lower its employment forecast far below its initial estimation of a monthly average of 180,000 jobs to be created this year.

 

 

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