South Korean finance minister highlights headwinds but cautiously upbeat on economic outlook
South Korea’s economic recovery remains weak despite a pick up in momentum, and uncertainties from sluggishness in the euro zone, China and Japan pose downside risks, Finance Minister Choi Kyung-hwan said on Wednesday.
Choi underscored the importance of maintaining the government’s fiscal expansionary stance, but also noted that structural reform was critical to bolstering the recovery.
“It will be difficult to achieve economic activity if we do not engage in aggressive structural reform,” he said in a speech in Seoul.
Choi was guardedly optimistic about the outlook for Asia’s fourth-largest economy, however, pointing to the recent strength in the housing market as a positive indication for consumption growth.
And despite some concerns of a stretched government balance sheet, “we will keep our expansionary policies until the recovery is tangible”, he said.
South Korea’s growth halved from the previous quarter to 0.4 per cent in the fourth quarter of last year, the central bank estimated in January, on weak government spending and overseas demand.
In his speech, Choi continued to highlight the headwinds facing South Korea.
“Our economy has shown partial improvement and the flame of hope has been lit, but there are uncertainties abroad,” he said. “There are hopes that the situation in the US will improve, but the euro zone, Japan and China remain as downside risks.”
The Bank of Korea cut interest rates twice last year in 25 basis point steps in August and October, taking the policy rate to a record-matching low of 2.00 per cent. Some economists expect the central bank will cut once more at its March 12 meeting or next month.
The central bank has cited rocketing household debt as one of the reasons for resisting further rate cuts since October.