BOK chief says downside risks are greater for Korean economy

The South Korean economy is expected to return to an above-par growth level during the second half of the year, but downside risks have been pronounced recently for Asia's fourth-largest economy, the central bank chief said Wednesday.

"The economic growth would recover after the third quarter of the year, but given a protracted contraction in domestic demand and investment, an increased volatility of the Korean won, downside risks are slightly greater (for the economy than upside ones)," Bank of Korea Gov. Lee Ju-yeol said at a forum.

Last week, the central bank lowered its economic growth by 0.2 percentage point to 3.8 percent for the year, factoring in the impact of a April ferry disaster that pummeled consumer and business sentiment here.

In particular, the bank trimmed its estimate for domestic spending growth to 2.3 percent from an earlier estimate of 3.1 percent.

His remarks came as the government is seeking to bolster growth momentum by rolling out a series of measures aimed at spurring consumer spending and corporate investment.

New finance minister Choi Kyung-hwan has pledged to consider all possible measures to boost growth, including an extra budget.

Lee cited household debt, falling growth potential, and a widening income gap, as threats to the Korean economy.

"Household debt growth is higher than the income growth rate, and non-banking institutions' loan extension is growing," Lee said.

South Korea's sizable household debt is considered a potential risk as high indebtedness in the private sector may hurt domestic demand and deteriorate the financial health of banks. Household credit rose to a fresh high of 1.02 quadrillion won in the first quarter.

The BOK governor also said the country's potential growth rate has slowed due to an aging population. According to the data by Statistics Korea, 12.2 percent of the country's 50.2 million people were 65 or older in 2013, which is higher than the 11.8 percent tallied in 2012 and much higher than the 3.8 percent in 1980.

The agency expected the percentage to further increase to 24.3 percent by 2030 and 32.3 percent by 2040, respectively.

"Economic participation rates for women and young people should be raised. Technology innovation and a continued restructuring would minimize negative impacts that an aging population has on the economy," Lee said. (Yonhap)