BOK lowers Korea’s 2024 growth outlook to 2.1 percent

Key rate left unchanged at 3.5%

The Bank of Korea (BOK) lowered its 2024 economic growth outlook for Korea to 2.1 percent, Thursday, down from a forecast of 2.2 percent made in August, citing weakening consumption and restrictive monetary policies at home and abroad. This year’s growth projection of 1.4 percent was left unrevised.

The forecast came hours after the Monetary Policy Board of the central bank left the key rate unchanged at 3.5 percent. It was the seventh consecutive rate freeze after the BOK held the rate steady in February, April, May, July, August and October.

BOK Governor Rhee Chang-yong said the board’s unanimous decision was warranted by high uncertainties in household debt growth and external market conditions, coupled with higher-than-expected inflation continuing to slow down.

“The currently available information suggests that both concerns about a further tightening by the U.S. Federal Reserve and geopolitical risks have been alleviated,” he said during a press briefing.

Global economic growth is projected to continue slowing, he added, driven by prolonged restrictive monetary policy stances in major countries. Inflation in major countries continues to slow down, but is still high, while core inflation is declining at a slow pace. Government bond yields in major countries have fallen significantly and the U.S. dollar has weakened considerably.

“We view that global economic growth and global financial markets are likely to be affected by international oil prices and the global inflation slowdown. We also have to consider the monetary policies of major countries and their effects as well as developments in the Israel-Hamas conflict.”

Korea is expected to display improved economic growth next year, led by an ongoing recovery in exports, according to the governor.

“This year’s GDP growth is projected to be consistent with the August forecast of 1.4 percent,” the governor said. “The figure for next year will pick up to 2.1 percent, slightly lower than the August forecast of 2.2 percent, due mostly to prolonged restrictive monetary policy stances from within the country and abroad, compounded further by a slowdown in the recovery of consumption.”

The revised down figure came on the heels of Statistics Korea’s October industrial production data released earlier in the day. The data showed production, consumption and investment declined 1.6 percent, 0.8 percent and 3.3 percent from a month earlier, respectively.

The total industrial production index, excluding seasonally adjusted agriculture, forestry and fisheries sectors, fell 1.6 percent from the month prior, which was the sharpest decline since April 2020 when it dropped 1.8 percent.

The governor said inflation this year will stand at 3.6 percent, and gradually moderate to below 3 percent from 2024 and onward. The projected figure is 2.6 percent for 2024 and 2.1 percent for 2025.

“Inflation is projected to maintain its underlying slowing trend due to a weakening of demand-side pressures and declines in global oil and agricultural product prices,” he said.

LG Economic Research Institute research fellow Cho Young-moo said consumption and investment will continue to be sluggish since a recovery in semiconductor manufacturing is not clear.

“High prices of goods and services and high interest rates will continue, because central bank policies tend to have a gradual market impact with a time lag of a couple of months,” he said. “The central bank will find it hard to raise the key rate due to unstable economic conditions and money market trends.”

Also factored in were heightened expectations of an end to policy rate hikes by the U.S. Federal Reserve (Fed), and moderating volatility in global oil prices under the context of stabilizing geopolitical risks worldwide, according to Lee In-ho, the former chairman of the Korea Economic Association.

“The Fed is showing signs of ending a cycle of years of rate hikes, buoyed by favorable U.S. price indicators. Stable international oil prices are easing pressure on the central bank to resort to a key rate hike to manage inflation.”