South Korean economic growth likely to average above 2.6 pct in 2017, BoK to keep rates on hold

The Bank of Korea is expected to maintain the benchmark rate at 1.25 percent for the remainder of this year, given the negligible inflation risk and high household debt, noted OCBC Bank in a research report. Furthermore, the new President Moon’s proposed infrastructure spending of an additional KRW 11.2 trillion to create an additional 810,000 jobs should suffice in providing growth support for 2017. Furthermore, Moon has also promised a 7 percent rise in government spending in 2018, up from 2017’s 3.5 percent in order to underpin growth and overall confidence.

Looking at South Korea’s growth drivers, the economic growth outlook continues to be favourable into the second half of 2017, barring a quick exacerbation in geopolitical tensions. With the possibility for trade and fund inflows to further underpin growth and sentiment, Korea’s growth print is expected to average above 2.6 percent comfortably. Elsewhere, if Moon’s proposed fiscal aid plays its part to generate the much required jobs, it should trigger further uplifts in overall consumer spending, added OCBC Bank.