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Further monetary easing required for S. Korea: international organization

All News 16:47 September 30, 2019

By Kim Kwang-tae

SEJONG, Sept. 30 (Yonhap) -- South Korea needs to further ease its monetary policy to prop up its slowing economy amid muted inflation pressure, a regional macroeconomic surveillance organization said Monday.

"An easier monetary condition would help ease the financial burden of corporates and indebted households, and boost business and consumer sentiments," the ASEAN+3 Macroeconomic Research Office (AMRO), said.

The region covers the 10-member Association of Southeast Asian Nations and its three Northeast Asian dialogue partners -- South Korea, China and Japan.

The Singapore-based organization added that South Korea should employ expansionary fiscal and monetary policies to support the economy buffeted by strong external headwinds.

The Bank of Korea kept the base rate frozen at 1.5 percent in its August meeting, about a month after it slashed the key rate by a quarter percentage point in its first rate cut in three years.

Sumio Ishikawa, the lead economist of the AMRO mission, said the South Korean economy is expected to grow by 2.1 percent in 2019 and 2.2 percent in 2020.

"The economy is facing headwinds from ongoing global trade conflicts and a slowdown of China, the U.S. and other advanced economies. Thus, the authorities should use its policy space to support growth," Ishikawa said.

In July, South Korea cut its economic growth outlook for this year to between 2.4 percent and 2.5 percent from its previous forecast of between 2.6 percent and 2.7 percent in December, citing weak exports and sluggish investment.

The AMRO said goods exports are expected to remain weak due to a downturn in the global semiconductor industry, the moderation of major economies, such as the U.S. and China, as well as spillover from the U.S.-China trade conflicts.

"Weaker-than-expected growth in China and other advanced economies, an escalation of the U.S.-China trade conflict, as well as a delayed rebound of global chip demand, can pose downside risks to Korea's highly-open economy," the AMRO said.

The surveillance organization said that over the medium to long term, the South Korean economy faces a decline in potential growth arising from aging population and structural challenges in the corporate sector.

"Given the ample fiscal space, we welcome the proposed expansionary fiscal stance for the next fiscal year to support growth and facilitate the restructuring of the economy," the report said.


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