Citing sluggish exports and weak domestic consumption – exacerbated by an outbreak of Middle East Respiratory Syndrome (MERS) that has killed 35 people – the Bank of Korea (BOK) lowered its forecast from 3.1 percent growth to 2.8 percent.
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South Korea’s central bank cut its 2015 economic growth forecast for the third time this year on Thursday, while keeping its benchmark interest rate unchanged at a record low of 1.5 percent.
“The local economy will recover going forth as Mers subsides and on expansionary macroeconomic policies, but the growth path faces high uncertainties”, Mr Lee told reporters, referring to the outbreak of the Middle East Respiratory Syndrome (MERS) that has considerably hurt consumption since late May.
Last month, the Bank of Korea (BOK)’s Monetary Policy Committee voted to cut the base rate by a quarter percentage point, sending the policy rate lower by a total of 1 percentage point since August past year.
Although Lee acknowledged that there are numerous downward risks, including the Greek debt situation, a slump in the Chinese economy and interest rate hikes by the U.S. Federal Reserve later this year, he dismissed concerns that the Korean economy might have entered a permanent low growth rate of 2 percent.
“We think the supplementary budget will have a relatively limited impact on growth”, said Joseph Incalcaterra, an economist at HSBC. To date, there have been over 160 confirmed cases of MERS in South Korea resulting in 23 deaths.
The economist forecast 2.8 percent growth, which is in line with the BOK’s forecast.
The government and private industry will together invest 6.8 trillion won by 2018 to support sectors such as organic light emitting diodes and manufacturing robots, the statement showed.
Xiaomi Corp. overtook Samsung Electronics Co.as China’s top smartphone vendor previous year, and plans to start selling this month in Brazil, a market where the Korean company also competes.
The Korea Trade-Investment Promotion Agency, known as Kotra, estimates that 68 percent of sales to China were intermediate goods in 2014, while consumer products accounted for just 4 percent.
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The government has already announced a separate $14.3 billion stimulus package to fight off the effects of MERS.
