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By Lee Kyung-min
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The bleak outlook came after the central bank decided to keep its key interest rate at 1.5 percent at the seven-member monetary policy committee meeting headed by BOK Governor Lee Ju-yeol.
In its 5-2 decision, the central bank blamed low inflationary pressure and worsening economic data for the freeze, but Lee did signal a rate hike in November.
The BOK revised down the country's growth rate for 2018 by 0.2 percentage point from its earlier estimate of 2.9 percent, and cut its forecast for 2019 from 2.8 percent.
The latest revision comes just three months after a 2.9 percent growth estimate was made in July.
The 2.7 percent expansion is the lowest since 2012 when the economy was hit hard following a sharp drop sparked by an economic crisis in Europe.
The gloomy outlook resulted chiefly from reduced investment in facilities over the past six months, the longest decline in 20 years.
Statistics Korea said Oct. 2 that facility investment dropped 1.4 percent in August from the previous month following a 0.3 percent decline in July.
Woeful employment figure also drove down the growth rate.
The net job increase stood at 3,000 in August, the lowest figure in eight years and seven months since January 2010.
Reflecting the worsening job market, the BOK predicted Thursday that the economy will create only 90,000 new jobs for the entire year, well below the 300,000 it forecast in January.
The BOK forecast that next year's facility investment will grow 2.5 percent, the same figure the country's construction investment is expected to fall by.
Despite the BOK's downgraded growth outlook, Lee signaled a rate hike in November, citing a growing imbalance in the financial system.
"Amid heightened global uncertainty, the BOK will maintain its accommodative monetary policy stance for now, but will continue to monitor inflation as well as the growth rate to determine how the monetary policy will influence the market," Lee said at a press briefing.
"We will carefully monitor conditions related to trade with major countries, changes in monetary policies of major countries, financial and economic conditions in emerging market economies, the trend of increasing household debt and geopolitical risks."
Some analysts said the BOK was trying to counter concerns that it is being influenced by the Moon Jae-in administration, coming under heavy pressure to reinvigorate the economy, according to a senior economist.
They expect that despite bad economic data, the BOK is highly likely to hike the key rate in November to head off a possible foreign capital flight caused by the widening interest rate gap between the U.S. and Korea.
"The freeze came amid numerous disturbing economic and employment indicators despite various government policies to keep the country's economy afloat," said Lee Chae-woong an emeritus professor of economics at Sungkyunkwan University.
"Despite the domestic concerns, I think the BOK will raise the rate next month given the gap between Korea and the U.S. will widen to 1 percent. The increased gap is of great concern given Korea is highly vulnerable to external shocks including foreign capital outflow."
U.S. hawkish Federal Reserve Chairman Jerome Powell indicated early October that the Fed is a "long way from ceasing the current upwards adjustment," indicating Fed rate hikes will continue.
