(2nd LD) BOK chief says economic slump may last but depends on U.S.-China dispute

(ATTN: ADDS more remarks by BOK chief in paras 10-12)

SEOUL, Oct. 8 (Yonhap) -- The ongoing slump facing South Korea and the rest of the world is widely expected to continue for some time, but the duration and degree of its impact will largely depend on how the trade conflict between the world's two largest economies will end, the chief of South Korea's central bank said Tuesday.

"The growth of the global economy is slowing down," Bank of Korea (BOK) Gov. Lee Ju-yeol told the parliamentary finance committee at the start of its annual audit.

"Such a slowdown is expected to continue for some time, and it seems the rate of such a slowdown will be greatly affected by the outcome of the U.S.-China trade negotiations and the course of the Chinese economy based on that outcome," the top central banker said.

Lee noted the Korean economy too has faced increased uncertainties stemming from the U.S.-China trade dispute.

"It appears the local economy will continue to face increased uncertainties in the future due to the slowing growth of the global economy and a delayed recovery of the semiconductor market," he said.

South Korea's exports have dropped for 10 consecutive months since December, partly led by significant cuts in outbound shipments of semiconductors, which account for nearly one quarter of its overall exports.

When asked later by Rep. Shim Jae-chul of the main opposition Liberty Korea Party, Lee said it "may not be easy to meet" the 2.2 percent growth target this year due to many negative but external factors, including the U.S.-China trade dispute.

The BOK has twice revised down its growth outlook for Asia's fourth-largest economy this year from 2.6 percent in January to 2.5 percent April, then to 2.2 percent in July.

Next month, the central bank is expected to further trim its growth outlook for the year given the increased downside risks.

The market expects the central bank to lower the key rate to 1.25 percent from the current 1.5 percent either at the rate-setting meeting next week or in November at the latest.

"We're aware of the market expectations. We have sent the financial market policy signal that the focus will be on supporting economic recovery," he said.

"Whether the rate will be adjusted will of course be decided by the seven monetary committee members."

The local economy is also struggling with low inflation caused by sluggish consumption at home, but the BOK chief insisted prices will soon begin to rise.

The country's consumer prices dropped 0.4 percent from a year earlier in September.

Lee said the first negative growth in inflation was largely due to a base effect created by a surge in prices of agricultural products last year.

"The rise in consumer prices is expected to stay close to 0 percent for the next one or two months but to rebound around the end of the year and then climb up to the 1 percent range from next year," he said.

The BOK chief dismissed the possibility of deflation in the near future but highlighted the need for more aggressive fiscal and monetary policies if necessary.

"As of now, there are no serious signs of deflation," Lee told the parliamentary committee after defining deflation as a steady drop in prices of "many products" for "at least several quarters."

bdk@yna.co.kr
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