Bank of Korea Governor Lee Chang-yong noted that this year's growth rate in Korea is the lowest in the last 30 years and emphasized that the new government needs to exhibit political leadership and embark on structural reforms.
On the 12th, Governor Lee stated in a speech commemorating the 75th anniversary of the Bank of Korea, "As announced in last month's economic outlook, this year's economic growth rate has been significantly revised down to 0.8%, and next year's growth rate is projected at 1.6%, which is a large downward adjustment from the forecast made in February." He added, "The expected growth rate this year is the lowest in the last 30 years, excluding the foreign exchange crisis, the global financial crisis, and the COVID-19 crisis."
He said, "Several factors are working together to create this low growth rate," adding, "While concerns about export slowdown due to the strengthening of U.S. protectionism are a significant part, the fact that domestic recovery has been delayed under political uncertainty over the past six months means that the growth rate for the first half of the year is expected to be only 0.1% compared to the same period last year is also an important factor."
He continued, "The Bank of Korea recognizes this situation very seriously, and accordingly, we see the need for urgent economic stimulus policies." He stated, "Since last October, we have been making efforts to boost economic vitality by lowering the base rate four times, and we plan to maintain an accommodative currency policy stance for the time being."
However, he mentioned that the extent of any additional rate cuts would be decided after examining the flow of macroeconomic indicators. The governor added, "If we lower the base rate excessively, there is a significant risk that it could lead to a rise in real estate prices in the metropolitan area rather than a recovery in the real economy," citing that "Since March, apartment prices in Seoul have risen by about 7% on an annualized basis, and the increase in household loans from financial institutions is also expanding, which we need to take note of."
The governor emphasized that structural reforms are urgent for long-term economic stimulus. He said, "The potential growth rate of our economy, which was around 4% in the mid-2000s, has rapidly declined to below 2% as the phenomena of low birth rates and aging have become increasingly pronounced," adding that "the probability of experiencing negative growth on a quarterly basis has increased to about 14% in 2024, which is three times higher than a decade ago."
He remarked, "Considering these changes, it is clear that stimulus measures for economic recovery are urgent in the current situation, but at the same time, efforts must also be made to prevent the continuous decline of growth potential and to establish an economic structure that is resilient to economic fluctuations. If we excessively rely on economic stimulus policies due to urgency, we may encounter greater side effects in the future."
The governor also stated, "If sufficient coordination and social consensus are not achieved, even good policies may face resistance from interest groups and end up being thwarted." He expressed hope that the newly launched government would clearly prioritize the structural reform agenda and demonstrate leadership in mediating social conflicts to turn the imminent crisis into an opportunity.
He stressed the need to discover new growth engines due to challenges such as digital innovation and the spread of artificial intelligence (AI). In this regard, he introduced that the Bank of Korea is working on building future digital currencies and digital financial infrastructure through "Project Han River" and "Project Agora."
He mentioned that the Bank of Korea will closely consult with relevant institutions regarding a won-based stablecoin. The governor stated, "Since won-denominated stablecoins contribute to innovation in the fintech industry while having a substitution function for legal currency, we will ensure they are stable and useful, while also establishing a regulatory framework to avoid circumventing foreign exchange market regulations."
He also introduced the Bank of Korea's AI development status. Governor Lee noted, "The Bank of Korea is developing an AI specialized for the institution based on the 'Sovereign AI' established by a domestic company, and we aim to implement it in the second half of this year." He expressed hope that this project would serve as a model case of public-private cooperation for the development of the domestic AI industry.