South Korea cuts 2017 growth forecast flagging Samsung woes

Customers returning their Samsung Note 7 mobile phones at a dealership in Seoul on Oct 13, 2016.
Customers returning their Samsung Note 7 mobile phones at a dealership in Seoul on Oct 13, 2016. PHOTO: AFP

SEOUL (AFP, BLOOMBERG) - South Korea's central bank on Thursday (Oct 13) trimmed its 2017 growth outlook, having considered the potential impact of Samsung's Note7 recall crisis on the national economy.

The electronics giant announced on Tuesday it was scrapping production of the new smartphone, following reports that replacements for combustible models were also catching fire.

The move sent Samsung's share price into a steep dive and forced it to slash its third quarter profit estimate by a third.

With Samsung accounting for around 17 per cent of South Korea's gross domestic product, such a major business reversal is likely to have a national impact, Bank of Korea Governor Lee Ju-Yeol said.

"Because it makes up such a large portion of our economy, we considered the impact from the disruptions in its production in our forecast," Lee told reporters following a monthly monetary policy meeting.


The meeting revised its 2017 growth estimate down to 2.8 per cent from 2.9 per cent.

The downgrade comes as experts warn of hurdles for the economy including an expected US interest rate rise, restructuring by South Korean firms and an anti-graft law that some warn will hurt retailers and food producers.

Judging the uncertainties facing the country's growth path to be "high", the bank also held its key interest rate at a record-low 1.25 per cent for the fourth consecutive month, while weighing the financial risks of mounting household debt.

Household debt rose to a record US$1.1 trillion as of the end of June - an 11 per cent jump from the same period last year, fuelled by eased mortgage rules and the low interest rate.

Krystal Tan, an analyst at Singapore-based Capital Economics said the debt concerns would "likely deter the central bank from cutting rates further".