Gov. Lee Ju-yeol of the Bank of Korea cautioned that increases in exports due to optimistic economic views across the country cannot be sustainable due the protectionist sentiments in some major importer countries.
The central bank governor issued the warning at a session with a number of economists on April 5 at the central bank’s office building near South Gate, downtown Seoul, where the recent economic trends made up the subject of discussions.
Creating new jobs should be given priority to improve persistently low domestic consumption, said the central bank governor.
“To shore up the domestic economy, particularly shrinking domestic consumption, boosting income growth through job creation is the most proper and fundamental solution,” said Lee during a meeting with the executives of economic research institutes and multinational financial services companies. The governor noted that the services sector should take the lead in job creation given Korea’s evolving economic structure.
“The services sector has experienced higher employment growth than manufacturing since 2000,” Lee said. “The services sector is destined to drive job creation instead of the manufacturing industry.”
Different regulations on operational hours and entry barriers should also be lifted for the future growth of the services sector, the governor noted. The head of the country’s central bank described current economic conditions as “rough” but maintained that the economy is on path to moderate growth, helped by upbeat exports.
“Despite the unfavorable economic conditions at home and abroad, the country is on track for growth, if gradual,” he said.
The Ministry of Trade, Industry and Energy announced that exports in March rose 13.7 percent year on year to $48.9 billion, positive results for the fifth consecutive month after falling for two consecutive years. Still, retail sales fell 2.2 percent in February, according to the latest data, compared to the previous month.
Among the participants in the meeting was Kwon Goo-hoon, a managing director of Goldman Sachs.
He noted that foreign investors pay attention to the impact that protectionism from the United States and geopolitical risks will have on the Korean economy. Korea's current account surplus widened in February from a year ago.
According to preliminary data from the Bank of Korea, the country logged a surplus of $8.4 billion in February, compared to a surplus of $7.6 billion last year. That's the highest figure in three months and extends the surplus streak for a 60th straight month.
The rise was attributed to a strong goods account surplus―which came to a five month high of over $10.5 billion.
At the same time, however, the services account deficit widened to over $2.2 billion, largely driven by a rise in overseas trips.
As for the overall trade figures: exports rose 23 percent on-year to 44.6 billion dollars, while imports rose 20 percent to $34 billion. Export growth in February was the highest in over five years, thanks to a pick up in global oil prices and a strong chip market.
Exports have been on an upward trend since last November, putting an end to nearly two years of decline.
However, there are lingering concerns that the trend could be short lived.
"Although the chances aren't that high, Korea may be listed a currency manipulator by the U.S. Even if it isn't, but China is, it will deal a blow to the country's exports, which are sent via China. On top of that, China's THAAD retaliation is also taking a hit on Korea's consumer products and if it spreads to intermediate goods it may have a negative impact on trade numbers."
A view of the Bank of Korea building near Myeong-dong, downtown Seoul.(Photos: BOK)