BOK chief warns of risk, lack of driver of economic growth

The head of South Korea’s central bank on Tuesday warned of persisting internal and external risks in Asia’s fourth-largest economy and the lack of a driver for economic growth other than semiconductor businesses within the next five years.

In a press conference Tuesday evening, Bank of Korea Gov. Lee Ju-yeol said Korea has yet to come up with an alternative in the face of the downturn of the semiconductor-making business, mainly led by market giants, such as Samsung Electronics and SK hynix.

“Since last year, the semiconductor boom has propped up the national economy, but this in fact also draws concerns about the future in the next three, four or five years,” said the central bank governor, who is serving his second term.

The chipmaking industry has been a major pillar of Korea’s export-driven economy. In November alone, semiconductor exports came to $10.8 billion, topping the $10 billion mark for seven consecutive months, according to data from the ICT Ministry. 

But on-year semiconductor export growth in November came to 10.6 percent, showing a contrast with that of July at 30.2 percent, indicating the fallout from lingering threats of a global trade war and concerns over semiconductor prices. Korean ICT goods exports fell in November for the first time in 25 months.

“The semiconductor business has buttressed Korea’s economic growth, but no one is sure how long this would last. What if the semiconductor sector gets into trouble and other troubled sectors fail to make a breakthrough?” said Gov. Lee.

His impression of “Made in China 2025” led to the conclusion that Korea is lagging behind in the global race for innovation, but the birth of new industries here is being hampered, he added.

“The world outside Korea is changing at breakneck speed, but the change from the inside is at a leisurely pace,” he said. “Everyone sympathizes with the need to nurture a new leading industry, but prerequisites to innovation, such as deregulation and more aggressive investment, have been impeded by conflicts of interest, fixed mindsets and archaic practices.”

Lee’s opinion came alongside external risks to Korean financial market, such as indicators of a slowing US economy and persisting threats from the now-temporarily-suspended trade war between the US and China.

Despite the uncertainties, Lee said he was confident about the recent decision to hike the rate to 1.75 percent, urging the need for a far-sighted approach.

He called the monetary tightening an “unpopular” decision that was crucial to prevent “financial imbalance.” He also said the change in annual growth projection by the end of 2018, at 2.7 percent since October, is unlikely to see further revision.

As for the level of national household debt growth that recorded the lowest quarterly growth in 3 3/4 years in the third quarter, Lee called for the pace of its increase to be slower, saying the household debt growth outstripping that of household income undermines the buffer from external shock.

By Son Ji-hyoung 
(consnow@heraldcorp.com)