Korea's 2016 growth rate to be same as this year's: Nomura

The South Korean economy is forecast to grow 2.5 percent next year, unchanged from this year's growth projection, mainly due to a protracted slump in exports, a Nomura economist said Monday.
  

"South Korea's economic growth will likely remain at 2.5 percent for both 2015 and 2016, and at 2.7 percent in 2017," Kwon Young-sun, a senior economist at Nomura International, said in a media briefing in Seoul.
  

"Its growth rate will miss the country's expected potential growth of 3.2 percent."
  

Nomura's 2016 growth forecast is far lower than the growth estimate of 3.2 percent for Asia's fourth-largest economy by the Bank of Korea and the International Monetary Fund.
  

Kwon noted that the country's sluggish exports will weigh heavily on the economy, given that South Korea's outbound shipments fell for the 11th consecutive month in November amid decreasing demand in China and Europe.
  

"The economy grew 1.3 percent in the third quarter, marking a five-year high. But 0.9 percentage point of the rate is attributable to the government-led stimulus," the Nomura economist said. "In the fourth quarter, the growth rate will slow down to 0.4 percent, as the government's impact is subdued."
  

He cited that more than 70 percent of South Korea's exports are bound for emerging countries, including China, which is expected to grow 5.8 percent, far undershooting Beijing's 7 percent estimate.

To prop up the economy, South Korea's central bank will likely cut its policy rate twice in 2016 amid reduced household debt pressure, said the economist.
  

South Korea's benchmark interest rate stands at a record low of 1.5 percent as the BOK has pursued an expansionary monetary policy since last year, cutting the rate by 1 percentage point within a one-year period.
  

"The BOK is expected to lower the policy rate to 1 percent by the end of next year," Kwon said.
  

The economist said that based on real terms, South Korea's real interest rate is relatively higher than its partner countries', and too high to support the economy and exports.
  

He said that the recent government's move to tighten mortgage loan schemes will give wider room to the central bank to adopt an additional monetary easing step.
  

The Financial Services Commission, the financial market regulatory body, announced a new screening system in July for home-backed loans in a bid to curb the growth pace of household debt, which totaled a fresh record of 1,166.4 trillion won ($1.01 trillion) at the end of September.
  

Starting next year, banks will be allowed to issue loans only after assessing a borrower's debt repayment ability -- their annual income -- rather than the value of collateral alone.
  

"The BOK's monetary policy has largely affected bank loans," Kwon said. "But the FSC has come up with household debt controlling plans. And the plan has caused the recent fast-growing pace of mortgages."
  

He said that the BOK will move to wield influence on foreign exchange rates, instead of bank loans, which will help local exporters remain more competitive in overseas markets.
  

"Although the U.S. Federal Reserve is widely expected to raise the rate later this month and have another rate hike next year, there is the slim possibility of a sudden outflow of foreign funds," said Kwon, citing the country's abundant foreign reserves and massive trade surplus.
  

"The South Korean authorities are capable of using the monetary policy to boost the economy."
  

Nomura expects the won-dollar rate to reach 1,250 won on average and the benchmark KOSPI stock price index to rise as high as 2,120. (Yonhap)