Corporates should increase spending to allow the Korean market to continue growing amid global stagnancy, according to an executive at HSBC.

The central bank is likely to again cut the key interest rate within the year as a temporary back-up measure to allow time for the measures to have an impact, said Frederic Neumann, managing director and co-head of Asian Economics Research at HSBC.

“Korean consumers have done all they can to boost the market and it is now up to the corporates to decrease savings and to extend investment,” said Neumann.


“But as the effects will be slow, the Bank of Korea is likely to carry out another rate cut, possibly in the third quarter, in order to hold up the nation’s economy,”

HSBC Korea, the local branch of the Hong Kong-based banking group, held a press briefing Wednesday and presented the economic forecast for Korea this year.

Korea has been pressed by a slow economic recovery around the world, and has been particularly impacted due to its heavy dependency on exports. But there is no cause for alarm, according to the official.

“Korea does have a problem in growth, as do most other countries, but its financial stability is relatively good, so the central bank and the government have the capacity to add more stimulus to the market,” Neumann said.

The nation’s foreign exchange reserves have soared, current accounts are in the black, and public debts per gross domestic product is relatively low, compared to its key trading partners.

“But there are two problems, one being the decline in real wage and the other the ever-increasing household leverage,” he said.

“Given the circumstances, it is now up to the corporates to loosen up on their cash reserves to pay out more dividends and to increase investment.”

The HSBC official predicted that Korea’s GDP growth for this year would be 3.1 percent, on par with the BOK’s recently revised figure. The Ministry of Strategy and Finance held onto its previous forecast of 3.8 percent.

“Despite optimistic views, the U.S. and the eurozone still need more time to fully recover from the consequences of the 2009 financial crisis,” Newmann said.

“Korea should keep pace with the rest of the world and focus on short-term maintenance until the situation improves.”

By Bae Hyun-jung (tellme@heraldcorp.com)