South Korea cuts GDP outlook, keeps policy of seeking equitable growth

SEOUL (Reuters) - South Korea trimmed economic growth forecasts for both this year and next year on Monday, citing weak investment and global trade disputes, and pledged to employ aggressive fiscal policy to cushion the impact.

The finance ministry said Asia's fourth-largest economy would post annual growth of between 2.6 and 2.7 percent this year and next year, down from the July predictions of 2.9 percent for this year and 2.8 percent for next year.

"The economy is faced with downward risks such as deepening trade disputes, spreading financial instability in emerging markets amid the normalising monetary policy by the major countries," it said in a scheduled policy statement.

This year's growth would be the slowest pace since 2.3 percent posted in 2012, and next year's projection appeared to be more optimistic than forecasts by global investment banks of as low as 2.3 percent.

The ministry also cut next year's consumer inflation forecast to 1.6 percent from 1.8 percent seen in July, while maintaining this year's at 1.6 percent, compared with the central bank's target of 2 percent.

This contrasts with the central bank's forecast for a gradual rise in inflation and supports the market's view that the central bank would leave interest rates unchanged throughout next year after the Nov. 30 hike.

The revised projections come days after veteran bureaucrat Hong Nam-ki was inaugurated as the Deputy Prime Minister and Minister of Economy and Finance, the country's top economic policy post. Analysts say changes to the outlook for growth could prompt a shift in economic policy away from welfare and wealth to distribution toward job creation an growth stimulus.

The ministry extended by six months a 30 percent cut in consumption tax for passenger cars beyond the end-2018 deadline, but maintained its policy of focusing more on an equitable wealth distribution than on seeking higher economic growth.

(Reporting by Hayoung Choi and Choonsik Yoo; Editing by Sam Holmes)