SEOUL: South Korean economy is expected to expand at an easier pace as compared to expectations, said a state-run think tank, who downgraded its economic growth forecast for this year and pledged for an accommodative policy to help revive the ailing economy. Asia’s fourth largest economy is expected to grow at 2.6 pct in 2016 compared to 2.7 pct in 2017, the Korea Development Institute said Tuesday. “Our economy will gradually improve on domestic consumption and construction investment, but growth will stay in the 2 percent range as exports will continue to be weak,” the think tank said in a report.
Further, it added that low interest rates coupled with subdued global prices will expectedly support consumption. Government policy should be incorporative to aggressively support corporate restructuring of troubled companies and also call on safeguards to protect against any short-term shocks from the process, KDI added.
The development authority of Korea further stated that the monetary policy of the country should be more accommodative to help Bank of Korea reach its inflation target of 2 pct from the current 1 pct. Easier policy would help buffer a slowdown in growth that could materialize from the corporate overhaul, the report said.
The Bank of Korea has cut interest rates four times to a record-low of 1.50 pct between 2014 and 2015, with the most recent rate cut occurring last June. Most market participants now see the central bank cutting interest rates again by 25 basis points in June or July to support economic activity. Although the think-tank is government-run, it formulates its own economic forecasts. Meanwhile, the Finance Minister of South Korea is expected to announce its revised forecasts in June.
