South Korea central bank says 2017 growth may cool, suggests more fiscal stimulus needed

[SEOUL] South Korea's central bank said on Thursday the economy risks slowing down in 2017 and suggested the government needs to step up fiscal stimulus to rev up growth, with Governor Lee Ju-yeol signalling there was more room to cut rates if needed.

In a statement prepared for a parliament session, the Bank of Korea said there is a chance growth next year may slow below an expected 2.8 per cent for this year.

In embargoed remarks to journalists on Wednesday, BOK chief Lee said downside risks would offset the positive impulse, and pointed to the government's planned spending for next year as being low in comparison to projected state income.

"I believe it is difficult to say next year's fiscal policy is accommodative," said Mr Lee. "Many institutions say now is the time for fiscal policy to do more. And I agree."

Mr Lee also said the corporate restructuring this year in the shipping and shipbuilding industries had not been carried out smoothly.

Commenting on the sluggish economy, the central bank said in a statement to parliament that it planned to keep its own policy accommodative, and Mr Lee indicated the BOK had more room to offer stimulus if needed.

The central bank said it expects capital outflows to pick up as interest rates rise in the United States.

The central bank held interest rates steady at 1.25 per cent for a sixth straight month in December, citing heightened domestic and global uncertainty, including from the incoming US administration of Donald Trump.

The bank will next review policy on Jan 13.

REUTERS