South Korea Growth May Reach 3.6% This Year, Lee Hyoung-il Says, as Stock Market Fundamentals Stay Solid

Lee Hyoung-il, South Korea’s vice premier and finance minister, said the economy could grow by as much as 3.6% this year and stressed that the underlying fundamentals of the economy and stock market remain solid despite recent volatility in local equities.

At a meeting with South Korean reporters in Bangkok on Oct. 16, Lee said growth this year could come in “in the mid-3% range, around 3.4% to 3.6%.” That would be as much as 0.6 percentage point higher than the government’s 3.0% forecast released in July.

He said South Korea’s economic and stock-market fundamentals remain sound. “I want to say that the Korean economy’s growth momentum is very strong,” Lee said. Investment is driving growth for now, and over time that momentum will spread to consumption, he added. Given factors including a large current-account surplus, the economy and stock market still rest on firm foundations.

Lee also said the semiconductor boom is likely to continue next year. Capital investment is currently very strong, he said, and that trend may continue into next year. Demand for semiconductors still exceeds supply, he added.

On potential growth, Lee said the economy could break out of its long-running downtrend and turn upward. “That moment is approaching, and in a sense it is close,” he said.

Addressing the recent rise in volatility in domestic stocks, Lee said he viewed it as more of a temporary correction. He cited concerns that global interest rates may rise more frequently than expected, questions over whether returns on artificial intelligence and semiconductor investment will be sustained as long as anticipated, and geopolitical risks in the Middle East.

He said the government is constantly monitoring markets and is prepared to deploy stabilization measures if needed. Any action would be decided according to market conditions, he added.

On the drop in the won-dollar exchange rate, Lee said the move reflects a return toward economic fundamentals. “The exchange rate rose into the 1,550 won range in July, which was out of line with our fundamentals,” he said. “What we are seeing now is a process of returning to those fundamentals.” The won rose from 1,559.2 per dollar in early July to 1,328.9 won per dollar on Oct. 16.

Lee also addressed a possible Korea-US currency swap agreement. Such a swap would be meaningful and necessary as a strong safety net for South Korea’s foreign-exchange market, he said. “This is not about asking for a swap because we are struggling with a shortage of foreign-currency liquidity,” he said. “Our economy has grown in size, and we need a currency swap arrangement on the level of advanced economies. It would serve as a strong shield for our economy.”

The government has also decided to increase the number of annual growth forecasts to three from two starting next year, to better reflect rapidly changing economic conditions. Instead of issuing its existing second-half economic growth strategy, it will adopt a system of adding policy measures whenever it revises its economic outlook.

Kim Ik-hwan, Hankyung.com reporter lovepen@hankyung.com