South Korea finance minister says economy on steady recovery

SEOUL (Reuters) - South Korea's economy has escaped sluggish growth seen in the fourth quarter of last year and seems to be on a steady recovery, the country's finance minister told lawmakers on Tuesday.

However, despite improvements the recovery momentum has not spread to all part of the economy as capital investment remains shaky and exports have been lagging on weak demand from China, Finance Minister Choi Kyung-hwan said.

Earlier Tuesday, the central bank said in a report to parliament that improving demand in advanced economies, the benefits of lower global oil prices and the impact of its three interest rate cuts since last year would help to bolster the economy.

The Bank of Korea lowered interest rates by 25 basis points in March to a record-low 1.75 per cent after cuts last August and October.

Its report also said the effects on the local economy from an expected rate hike by the U.S. Federal Reserve would be manageable. "Should the rate hike take place after September as markets expect, the impact on international markets will be limited," the report said.

However, should the U.S. rate hike take place sooner than expected and coincide with other global risk factors like an aggravation of the financial turmoil in Greece, it would have a "considerable impact" on local markets, said the central bank.

As for current household debt levels at home, the BOK said the pace of debt has been rising at a faster clip than household income, although it is not expected to become a systemic risk.

The report showed household debt had risen to 164.2 per cent of disposable income as of end-2014 from 125.3 per cent in 2005, according to data in the report.

The bank noted if household debt keeps increasing at a faster pace than income, asset soundness could worsen if interest rates rise or higher debt loads could hold back consumption.