South Korea economy shows signs of rebound, but downside risks increasing

Workers labour on a steel frame at a construction site in central Seoul, South Korea, on March 25, 2016.
Workers labour on a steel frame at a construction site in central Seoul, South Korea, on March 25, 2016. PHOTO: REUTERS

SEJONG, SOUTH KOREA (REUTERS) - South Korea has shown signs of a rebound from February onward, but a clear upward trend has still to emerge and there are increasing downside risks, the country's vice finance minister said on Monday (April 4).

"We saw a sluggish first quarter as the effects of year-end policies to boost growth expired, but towards the end of the first quarter we noted signs of a rebound, especially in February," Vice Finance Minister Choi Sang-mok told a news conference in the city of Sejong, south of Seoul. "However, it is difficult to say that we are on a firm rebound trend."

The government acknowledges the fragility of the economic recovery, but it has no plans yet to revise its 2016 GDP forecast of 3.1 per cent, the vice minister said, without elaborating the on the risks South Korea faces.

The finance ministry will release its next economic forecasts mid-year.

The Bank of Korea, however, is set to revise its forecasts later this month, and it is widely expected to cut its current growth forecast of 3.0 per cent as the governor said last week that GDP growth this year is likely to fall under that level.

Mr Choi also reiterated the finance minister's comments from earlier this year that the government may announce some changes to its existing capital controls by the end of June, in case of possible outflows.

Recent fluctuations in global financial markets were not South Korea's problems alone and government officials were watching developments, Mr Choi said.

The vice minister added that the real estate market is unlikely to show any sharp price movements this year, taking a breather after the government launched a number of policies in 2015 to revive activity in the housing market.

Separately, Mr Choi confirmed a Reuters report from last week that South Korea's central bank will likely select two local banks to handle clearing and settlement services ahead of the launch of a yuan-won market in Shanghai.