South Korea raises 2017 growth outlook amid trade fears

The Bank of Korea said it expects Asia's fourth-largest economy to expand three percent in 2017, up from its earlier prediction of 2.8 percent

South Korea's central bank on Thursday raised its growth forecast for this year but warned the pace of recovery could be affected by rising protectionism.

The Bank of Korea said it expected expansion of 2.6 percent in 2017, up from its earlier projection of 2.5 percent given in January, marking the first upward revision in three years.

It left its key interest unchanged at a record-low 1.25 percent for the 10th consecutive month in a move aimed at maintaining financial stability with uncertainty both at home and abroad.

"The Board sees the global economic recovery as likely to be affected by factors such as the directions of the new US government's economic policies," it said in a statement following a monthly board meeting.

The bank said the pace of monetary policy normalisation by the US Federal Reserve and "movements toward spreading trade protectionism" were other factors that could hamper the global economy.

The Trump administration's "America first" focus has raised the spectre of protectionism to reduce the large US trade deficit, which could see higher tariffs on imports.

While South Korea's economy has shown moderate growth, the central bank warned growth in exports and domestic demand is "expected to be limited, owing to changes in conditions related to trade with major countries".

Exports rose for the fifth consecutive month in March while retail sales expanded 3.2 percent in February from a month earlier, signalling a pick up in consumer sentiment.

Strained economic ties with China following Seoul's decision to deploy a US missile defence system remains a key factor that could put a damper on South Korea's economic recovery.

Beijing launched a series of measures against the South seen as economic retaliation, forcing dozens of South Korean retail stores in China to shut their doors and banning Chinese tour groups from visiting.

"We will use all possible measures to counter (Beijing's retaliatory measures) but we will not let go of our economic cooperation with China," the country's finance minister Yoo Il-Ho told a government meeting.