“Maintaining Stable Governance is Key to Economic Stability”
“While a 1.9% Growth is Projected, Downside Risks Increase”
Lee Chang-yong, Governor of the Bank of Korea, stated today (2nd), “We will closely monitor the development of internal and external risk factors and subsequent economic trend changes based on the data received, and decide on the pace of interest rate cuts flexibly.”
Governor Lee made this monetary policy forecast in his New Year’s speech, saying, “Unprecedented political and economic uncertainties have increased, and conflicting policy variables such as prices, growth, exchange rates, and household debt will expand over the new year.”
He also emphasized the importance of political stability.
He stated, “In the current situation, it is difficult to stabilize our economy solely through monetary policy. If political conflicts continue and create a governance vacuum, it will negatively impact external credibility and add both direct and indirect shocks to the economy, making it crucial to maintain stable governance.”
He continued, “Despite differing evaluations based on political interests, Acting President, Deputy Prime Minister, and Minister of Strategy and Finance Choi Sang-mok made difficult but unavoidable decisions prioritizing economics over politics to prevent a decline in external credibility and governance void. This signifies that our economic system will operate independently from political processes going forward.”
This is interpreted as support for Acting President Choi’s decision to appoint two constitutional judges from the perspective of economic stability.
Governor Lee expressed concerns about the hardships facing the Korean economy this year but warned against exaggerated crisis narratives.
He noted, “The Bank of Korea projected a growth rate of 1.9% for this year in November last year, but downside risks have indeed increased. While this is historically low, it aligns with the average growth forecast of 1.8% for 26 countries with a GDP per capita of over $30,000 (as of October 2024 by the International Monetary Fund) and should not be viewed as akin to crises like the foreign exchange crisis, global financial crisis, or COVID-19 pandemic.”
He also called for continued economic structural reforms.
Governor Lee highlighted issues such as the lack of efforts in new industry development and corporate value enhancement, and the globally high household debt ratio, warning, “As a result of delaying solutions to these structural problems, our country’s potential growth rate has decreased to 2%, and if unresolved, it could fall to the 0% range by the late 2040s.”
He concluded, “The environment we face this year is certainly challenging, but just as we’ve overcome past challenges, we can do so again. Like the principles of ‘turning worries into advantages’ and ‘never letting a good crisis go to waste,’ if we calmly address necessary actions first and create new opportunities, our economy can once again take a leap forward.”