South Korea's central bank on Thursday lowered its 2017 economic growth outlook by 0.1 percentage point on worries about uncertainties at home and abroad as well as Samsung Electronics' decision to discontinue Galaxy Note 7 smartphone.
Bank of Korea (BOK) Governor Lee Ju-yeol told a press conference after the regular rate-setting meeting that the bank's growth outlook for next year was downgraded to 2.8 percent from 2.9 percent forecast three months earlier.
The BOK's 2017 growth forecast continued to fall from 3.2 percent estimated in January to 3.0 percent in April and 2.9 percent in July. South Korea's economy expanded 3.3 percent in 2014, before tumbling to a 2.6 percent increase in 2015.
Outlook for this year's growth was unchanged at 2.7 percent. The bank expected consumer prices to rise 1.0 percent this year and 1.9 percent next year each.
The bank's 2017 growth outlook of 2.8 percent is still high compared with figures estimated by public and private economic think tanks.
The state-run Korea Development Institute (KDI) set its growth forecast for next year at 2.7 percent, with Hyundai Research Institute and LG Economic Research Institute putting their outlooks at 2.5 percent and 2.2 percent respectively.
Governor Lee said the downward revision was made to reflect long-term structural problems and short-term risk factors facing the South Korean economy.
Lee cited growing uncertainties from Brexit, or British referendum to leave the European Union (EU), and the expected interest rate hike in the United States as major external risk factors.
The expected U.S. rate hike would put pressure on the BOK, which cut the benchmark interest rate in June to an all-time low of 1.25 percent. The bank kept the rate on hold this month, maintaining a rate freeze for four straight months.
The ongoing restructuring in shipbuilding and shipping lines was cited as key risk factors in the domestic front that would weaken sentiment among economic subjects.
The government-led restructuring among shipbuilders and shipping lines is going on after major three shipbuilders, including Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering, pledged to reduce workers by 30 percent and overcapacity by 20 percent by the end of 2018.
Hanjin Shipping, South Korea's largest container shipping line, filed a court receivership last month, which is expected to raise unemployment rate in the sector.
Governor Lee said the downward growth outlook also reflected the discontinuance of Samsung's Galaxy Note 7 smartphone. He noted the effect from the Note 7 discontinuance was not reflected sufficiently, indicating an additional downgrade in the bank's growth forecast for the Note 7 scandal.
Samsung decided to discontinue its latest flagship smartphone, Galaxy Note 7, as cases of the phones catching fire and overheating were reported globally. The company revised down its preliminary figure for the third-quarter operating profit by a third to reflect losses from the decision.
The discontinuance scandal from the crown jewel of Samsung Group, South Korea's No.1 family-run conglomerate, is expected to weigh down on the country's economic recovery at least by the end of this year.
