NEW YORK: South Korea must prepare for slower economic growth in the years ahead as it deals with "heightened economic uncertainty at home and abroad," the head of the country's central bank said on Wednesday.
South Korea's economy "is expected to continue its solid growth, but as the growth rate is anticipated to slow down over the medium to long term, it is vital to be prepared for this situation," Bank of Korea Governor Kim Choong-soo said in remarks prepared for delivery at a gathering of the Asia Society.
Last week, South Korea's central bank held interest rates steady for a 10th consecutive month, and on Monday it trimmed its economic forecast for this year to growth of 3.5 percent, from 3.7 percent, citing the global downturn and weak domestic demand.
Export momentum in South Korea, Asia's fourth-largest economy, is now expected to approach a pre-financial-crisis level in the second half of this year, Kim said.
"However, downside risks are expected to remain high for some time, affected by external risk factors including the inflationary pressure from oil prices and possibility of euro area sovereign debt problem spreading," he said.
"To boost the future growth potential, the key is making the transition from input-led growth to productivity-led growth."
Earlier this week, Kim said oil prices pose the biggest risk to South Korea's economy. The price of Brent crude oil in London has recently hovered around $118 a barrel.
Many economists now expect the Bank of Korea to keep rates on hold through 2012. Between July 2010 and June 2011, the bank had raised rates by a total of 125 basis points.