The Bank of Korea Says "Some Easing of Economic Slump"... Will It Hit Bottom and Rebound This Year?

Decision to Keep the Base Interest Rate at 1.25% in January

Export and Facility Investment Slumps Expected to Gradually Ease

Bank of Korea Governor Lee Ju-yeol is attending the 'Monetary Policy Direction Financial Monetary Committee' held at the Bank of Korea in Jung-gu, Seoul on the 17th, waiting for the meeting to start. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Shim Nayoung] The Bank of Korea has assessed that the domestic economic downturn is showing signs of partial easing. According to the Bank of Korea on the 18th, at the first Monetary Policy Committee meeting of the new year held on the 17th, it was decided to keep the base interest rate unchanged at 1.25%.

The decision was based on expectations that the export situation in South Korea would improve as external uncertainties eased following the Phase One trade agreement between the U.S. and China, and accordingly, the economic growth rate would hit bottom. There is also analysis that the Bank of Korea will have no choice but to keep rates steady for the time being to align with President Moon Jae-in’s real estate regulation policies. The Bank of Korea lowered the base rate twice last year in July and October due to economic sluggishness, and has maintained it at 1.25% since November.

Immediately after the meeting, the Bank of Korea stated in its monetary policy direction statement that "the domestic economy showed signs of partial easing of the downturn," adding, "Although construction investment and exports continued to decline, facility investment slightly increased and consumption growth expanded." It further forecasted, "This year’s GDP growth rate is expected to be in the low 2% range, generally in line with the forecast path from last November," and "While adjustments in construction investment will continue, the slumps in exports and facility investment will gradually ease, and consumption growth will moderately expand."

The Bank of Korea identified the government’s expansionary economic response policies and progress in U.S.-China trade negotiations as upward factors due to the easing of global protectionist trade trends, while citing increased geopolitical risks including heightened tensions in the Middle East and the possibility of renewed global trade disputes as downward factors.

Regarding inflation, it reported, "The consumer price inflation rate rose to the high 0% range due to a reduced decline in prices of agricultural, livestock, and fishery products and an increase in petroleum prices," and "the core inflation rate (excluding food and energy) remained in the mid-0% range, while general public inflation expectations stayed in the high 1% range." It added, "Going forward, the consumer price inflation rate is expected to rise to around 1% this year, generally in line with the forecast path from last November, and the core inflation rate is expected to be in the high 0% range."

It also assessed, "In the financial markets, stock prices rose and the won-dollar exchange rate fell influenced by movements in international financial markets and expectations of a semiconductor industry recovery, while long-term market interest rates fell and then rebounded," and "household loans increased in scale, and housing prices showed a strong upward trend centered on the Seoul metropolitan area."

Meanwhile, the government is also supporting the 'economic bottoming out' theory by mentioning increases in service sector production and consumption and improvements in facility investment. Regarding the export and construction investment slumps, previously identified as constraints on economic growth, the government diagnosed them as being in an 'adjustment phase.' The Ministry of Economy and Finance stated in the January issue of 'Recent Economic Trends (Green Book)' that "Recently, our economy has seen moderate increases in service sector production and consumption, and facility investment is gradually recovering from the slump, but exports and construction investment remain in an adjustment phase."

The expression of 'sluggishness' regarding the economy, which had continued for seven months from the April to October issues last year, has disappeared for three consecutive months since November, replaced by positive assessments such as 'moderate increase' and 'recovering from the slump.' In particular, the export and construction investment sectors, which were evaluated as growth constraints last month, were described as 'continuing adjustment phase.'

This content was produced with the assistance of AI translation services.