The Bank of Korea has frozen the interest rate at 1.50% for 11 months a in row. It revised this year’s economic growth rate downward to 2.7% and it also presented next year’s economic growth rate at 2.7%.
Lack of employments has had greatest impact on this estimation. The Bank of Korea’s estimation on number of annual new employees was cut in half from 180,000 to 90,000.
If this estimation continues, South Korea’s economy will record its lowest growth rate since 2012 (2.3%).
The Bank of Korea held Monetary Policy Board at its headquarters on the 18th and it has frozen the interest rate at 1.50%. Member Lee Il-hyung and member Ko Seung-beom suggested their opinions about increasing the interest rate by 0.25%.
On this day, The Bank of Korea lowered this year’s economic growth rate from 2.9% to 2.7%. Its estimation fell from 3.0% to 2.9% in July and finally to 2.7%. It also lowered next year’s economic growth rate from 2.8% to 2.7%.
“Although our estimation has been revised downward, it is not too apart from potential growth rate (2.8 to 2.9% from 2016 to 2020.” said President Lee Joo-yeol of The Bank of Korea while calming any concern about economic depression.
However, a phrase ‘sound growth’ was ultimately erased from The Bank of Korea’s letter of resolution. Although there was a phrase ‘South Korea’s economy will continue its sound growth’ until August, it was replaced with a phrase ‘South Korea’s economy will continue growth at a level of potential growth rate’.
It seems that Monetary Policy Board believes that South Korea’s economic growth rate is not as same as before.
Actually, this year’s economic growth rate did not meet ‘2018 growth rate (2.9%)’ announced last year due to lack of employments and reduction of investments.
While an increase in number of new employees was only 5,000 in July, when ‘South Korea’s worst employment crisis had occurred’, number of new employees in September was only 45,000 more than that of August. Also, The Bank of Korea estimates that there will be only 90,000 new employees in 2018 that is only half of South Korean Government’s goal. The Bank of Korea estimates that there will be about 160,000 new employees in 2019.
“By increasing our estimation on number of new employees for this year, we also revised this year’s economic growth rate downward as a result.” said Vice-President Jung Kyu-il of The Bank of Korea. “Lack of employment also took place in manufacturing industry as effect of restructuring has continued. Although lack of employment problem will be better for manufacturing industry, it is expected that this problem will continue for service industry.”
Change in cycle of coincident composite index also recorded its lowest value in 9 years due to continuous lack of investments. While The Bank of Korea predicts that facility investments by IT manufacturing industry will somewhat improve with semiconductors at the center, it predicts that non-IT manufacturing industry will continue to suffer due to effects of protectionism. The Bank of Korea predicts that construction investments will continue to restructure due to lack of contracts and new construction.
“Because estimation on global economy was revised downward as uncertain elements such as trade conflict between U.S. and China and American monetary policies have taken places, it is difficult to see that our economy has quickly slowed down compared to the past.”
Staff Reporter Ham, Jihyun | goham@etnews.com