Risks to South Korea’s economic growth have risen mostly from outside the country, warranting stronger policy measures to support growth, the country’s top presidential economic policy aide said.
The remarks came as investors have been increasing bets that the central bank would cut its policy interest rate in the next few months for the first time since mid-2016 to keep Asia’s fourth-largest economy from weakening further.
“Along with the slowing global economy, downside risks to the South Korean economy have also risen,” Yoon Jong-won told reporters, although he did not comment on interest rate policy. Yoon made the remarks on Friday, on condition of publication on Sunday.
The trade conflict between the United States and China has lasted longer than expected, making it difficult to predict when South Korea’s economy would turn around, he said.
The Bank of Korea’s seven-member monetary policy committee independently sets the policy interest rate, but views of government officials about the economic situation are an important factor on the committee’s policy reviews.
South Korea’s trade-dependent economy unexpectedly contracted by a seasonally adjusted 0.4% in the first quarter from the previous quarter, its worst performance since the 2008-2009 global financial crisis.
The monetary policy committee left the policy interest rate unchanged at 1.75% at its latest meeting in late May, but a split vote in the decision was widely interpreted by investors as a signal that rate may be cut soon.
It next reviews its policy on July 18.
Yoon said the government was considering measures to boost investment and help exporters, adding that full details would be unveiled later this month when the finance ministry is due to update its policy goals and economic growth projection.