S. Korean gov't slashes 2017 economic growth outlook to 2.6 pct

The South Korean government on Thursday slashed its 2017 economic growth outlook by 0.4 percentage points, bolstering concerns about the protracted low-growth trend, a government report showed on Thursday.

Next year's growth forecast was cut to 2.6 percent from 3.0 percent unveiled six months earlier, according to the Ministry of Strategy and Finance.

Real gross domestic product (GDP) expanded 3.3 percent in 2014, but the growth rate declined to 2.6 percent in 2015. The ministry set this year's growth forecast at 2.6 percent.

The downward revision for next year stemmed mainly from the expected slowdown in private consumption amid the expected interest rate hikes in the United States.

Confidence among consumers already worsened on political unrest caused by the impeachment of President Park Geun-hye. Consumers refrained from spending money on economic worries.

The U.S. Federal Reserve raised its benchmark interest rate by a quarter percentage point in December, indicating three rate increases in 2017. It would put pressure on the Bank of Korea (BOK) to lift its record-low policy rate.

The BOK lowered its benchmark rate from 3.25 percent in July 2014 to an all-time low of 1.25 percent in June this year, encouraging households to purchase new homes with borrowed money.

The record-breaking household debts will weigh down further on private consumption given that debt-servicing burden among South Korean households would increase in accordance with the expected higher borrowing costs from higher U.S. interest rates.

The ministry's growth outlook for consumer spending was set at 2.0 percent in 2017, lower than the estimated 2.4 percent expansion in 2016. Endit