Finance Ministry warns pace of recovery slowing

Korea’s economic recovery lost some steam recently, with production and consumption slowing at home and exports continuing to get pounded by global trade woes, the Finance Ministry said Wednesday.

In its latest monthly economic survey, the ministry expected the pace to pick up later this year, if and when the government’s fiscal stimulus and consumption-boosting steps exert their anticipated effect.

“With industrial output sluggish, Korea’s economy is undergoing a correction in consumption, due to one-off factors such as the termination of a special tax relief,” the Green Book said. 

The monthly assessment comes a day before the Bank of Korea reviews its key interest rate, currently staying at a record low 1.5 percent for the eighth month running. Over 72 percent of bond market participants expect a rate freeze, shows a survey by Korea Financial Investment Association.

Despite a rebound in oil prices and financial markets, the economic mood has darkened in Korea recently, after economic indicators pointing to increased downside pressures.

Industrial output fell for a third consecutive month in January, while consumer sentiment fell to an eight-month low in February. Exports extended their period of monthly declines to the longest stretch on record, plummeting 12.2 percent in February from a year ago.

Korea Development Institute, a state-affiliated think tank, warned of a possible delay in recovery in a recent report.

Also on Wednesday, the Bank of Korea noted a persistently fast growth of household credit, which some experts see as one key area of potential risks for Korean economy.

Household credit expanded by 3 trillion won ($2.5 billion) in February, up from the previous month’s 2.1 trillion won gain. The February average of the past five years is 900 billion won. 

By Lee Sun-young
(milaya@heraldcorp.com)