Kim Choong-soo: still optimistic
At a time of growing external uncertainties, economic projections seem a touch meaningless.
Still, the Bank of Korea on Thursday cut its growth forecast for next year to 3.8 per cent from its July estimate of 4.0 per cent, citing increasing “downside risks” from the US fiscal impasse. The Bank also held interest rates steady at 2.5 per cent, as expected.
The Bank of Korea held rates steady on Thursday at 2.5 per cent – the third hold in a row. So far, all as expected.
But the statement from the bank was a fair bit more optimistic than in previous monetary policy minutes. So what’s the good news?
South Korean banks’ outstanding loans to households posted the biggest monthly fall on record in January – seemingly good news for policy makers seeking to rein in the country’s huge household debt.
But the data highlight a dilemma for the authorities, because the falling household loans could also have a depressing effect on the country’s sluggish property market.
It’s a daunting job to forecast economic growth at time of huge uncertainty over the global outlook and volatility in financial markets. That is why some investors just dismiss economists’ projections as meaningless.
The Bank of Korea’s notoriously inaccurate economic projections give critics plenty of ammunition. On Thursday, the Bank cut its forecasts for 2012 for the third time this year, estimating growth at 2.4 per cent, well short of its initial 3.7 per cent figure. With the bank cutting interest rates by 25 basis points to 2.75 per cent, arguments over growth predictions are no academic matter.
South Korea’s most conspicuously worrying statistic – its towering stock of household debt – continues to grow.
According to the latest data, published by the Bank of Korea on Thursday, household credit rose by 1.2 per cent between the end of March and the end of June, taking it to 922 trillion won ($816bn): a year-on-year rise of 5.6 per cent from the previous year. But there are signs that the rate of increase might be slowing.