South Korea Risks Extended Slump as BOK Warns of Low Growth and Inflation
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South Korea's economy faces a significant risk of prolonged low growth and low inflation, warning the Bank of Korea (BOK) in a report released Wednesday, according to Yonhap News Agency. The central bank cannot rule out the possibility of Asia's fourth-largest economy experiencing this double whammy over the medium to long term, especially if South Korea's potential growth fails to improve.
The BOK's report, focused on price stabilization, highlighted the potential limitations of monetary policy in such a scenario. If South Korea remains trapped in a low-growth, low-inflation cycle, the effectiveness of the BOK's monetary tools could be curtailed, while asset prices might experience upward pressure.
The BOK presented structural reform as a potential solution to address these challenges. "The structural reform can improve asset allocation, which in turn increases growth potential and the resilience from any shocks," the central bank stated.
The BOK's forecast for 2025 and 2026 paints a picture of sluggish growth. The central bank expects the economy to expand by 1.9% in 2025 and 1.8% in 2026. Private spending is projected to increase at a similar pace, at 2% in 2025 and 1.8% in 2026.