S. Korean economy likely to contract less than expected: BOK head

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SEOUL, Oct. 15 (Yonhap) -- South Korea's top central banker said Thursday the
local economy is likely to shrink less than expected this year, forecasting a
mild recovery down the road.
"The annual growth rate of the Korean economy is forecast to stand between minus
one and zero percent this year," Bank of Korea (BOK) Gov. Lee Seong-tae said at a
parliamentary audit session. "Next year, the local economy is likely to grow
between 3 and 4 percent."
The BOK earlier predicted that Asia's fourth-largest economy will contract 1.6
percent this year before growing 3.6 percent next year.
Lee said in the fourth quarter, the Korean economy is not likely to be as strong
as in the third quarter. "But the economy is likely to post positive growth in
the final quarter of this year," he said.
On Tuesday, Finance Minister Yoon Jeung-hyun also forecast that the economy could
shrink by one percent or less this year, compared with a previous estimate of a
1.5-percent contraction.
The BOK chief's remarks came as the Korean economy is recovering at a
faster-than-expected pace on the back of aggressive fiscal spending and rate
cuts.
The economy grew 2.6 percent in the second quarter of the year from the previous
quarter, the fastest clip in more than five years. The on-quarter growth in the
April-June period is faster than the 0.1-percent on-quarter gain in the first
quarter of the year.
But despite the upbeat outlook, uncertainty over the global economy and a
sluggish job market are feared to be major downside risks.
Gov. Lee downplayed the possibility that the local economy may fall into a
double-dip downturn, where momentum declines following a short-lived recovery.
"The Korean economy will likely continue its mild recovery phase," Lee said.
The BOK reiterated it will maintain an accommodative policy stance for the time
being due to lingering economic uncertainty, but added it plans to closely watch
asset prices and cash flows to ensure that the current easing stance does not
impede economic and financial stability.
The central bank cut the key interest rate by a total of 3.25 percentage points
to a record low of 2 percent between October and February.
Lee said the timing of withdrawing emergency measures hinges on each country's
economic fundamentals.
When asked about the possibility that Korea could shift more quickly into a
tightening stance compared with advanced economies, Lee said that was possible
given economic conditions until now but uncertainty over growth remains.
sooyeon@yna.co.kr
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