South Korea central bank chief says weak consumption holding back recovery

SEOUL (Reuters) - Weak consumption is the biggest factor holding back South Korea's economic recovery, the country's central bank governor said, cautioning that a return to solid growth is some way off. "Sluggish domestic demand centred around consumption is the main factor that we see harming the pace of economic recovery," Bank of Korea Governor Lee Ju-yeol told reporters at a lunch briefing at the central bank headquarters in Seoul on Tuesday. "Meanwhile looking at exports, they are expanding in terms of volume but cannot be seen as a factor that can change our economic outlook greatly." The news conference was held to mark his first anniversary as governor. The stuttering economic recovery has prompted the central bank to ease policy three times since last year, the most recent being on March 12 when the benchmark rate was cut by a quarter percentage point to a record-low 1.75 percent. "It will be difficult for the economy to escape current difficulties in a short period of time," Lee said. "However, we have hopes the situation will become gradually better as the global recovery is ongoing and the government is bolstering efforts for structural reform." Lee's comments come just a day before February output data is released by the government, which analysts have tipped to have edged up 0.4 percent on monthly terms, after production declined at its biggest pace in six years. On Sunday data showed revised retail sales in February grew at the fastest pace in six months thanks to a major holiday falling on the month, but lagged earlier estimates. Asia's biggest economy grew at its slowest quarter-on-quarter pace in almost six years in the fourth quarter of last year. In a nod to the gloomy indicators, the central bank is widely expected to downgrade its economic forecasts on April 9 when it makes its quarterly revision as well as its next monthly policy decision. The Bank of Korea currently sees GDP growth for this year at 3.4 percent. Lee reiterated that South Korea is unlikely to slip into deflation, while adding that household debt will not pose any systemic risks to the economy. (Reporting by Christine Kim; Editing by Eric Meijer & Shri Navaratnam)