South Korea’s central bank yesterday trimmed its growth outlook for next year, having considered the potential impact of Samsung Electronics Co’s Galaxy Note 7 recall crisis on the national economy.
The electronics giant on Tuesday announced 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 about 17 percent of South Korea’s GDP, such a major business reversal is likely to have a national impact, Bank of Korea (BOK) 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 said following a monthly monetary policy meeting.
The BOK revised the growth estimate for next year down to 2.8 percent from 2.9 percent. It also forecast growth in consumer prices hitting 1 percent for this year, versus a previous forecast of 1.1 percent, and 1.9 percent next year.
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 percent 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 percent jump from the same period last year, fueled by eased mortgage rules and the low interest rate.
Still, the central bank is unlikely to cut rates anytime soon, Asia economist Krystal Tan said.
“The most recent hard economic data have been disappointing, but the weakness has been mainly driven by temporary factors,” Tan wrote in a note.
“Ongoing problems at Samsung, as well as a strike by automobile workers led to a slump in shipments of electronic items and vehicles in September, dragging down exports last month,” she said. “The BOK was never going to cut interest rates because of such one-off factors.”
Additional reporting by Bloomberg
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