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S. Korea’s growth rate to hover below inflation gain this year

SEOUL, Oct. 23 (Yonhap) -- South Korea’s economic growth rate is expected to fall below its inflation gain this year due mainly to sluggish exports and rising consumer prices, data showed Sunday.

The average forecast of South Korea’s 2011 growth by 10 foreign investment banks came to 3.7 percent as of end-September, while their median inflation projection was 4.3 percent, according to the data by the Korea Center of International Finance and industry sources.

The 0.6 percentage point gap is set to mark one of the highest levels among Asian economies.

The corresponding figure for the Indian economy stood at 1.5 percentage points, followed by the Philippines with 0.4 percentage point and Thailand with 0.1 percentage point, the data showed.

In contrast, other Asian economies, including China and Taiwan, saw their growth outlook exceed inflation projections.

The gap for China stood at 3.8 percentage points, while that of Taiwan reached 3 percentage points. The figures for Singapore and Indonesia came to 0.4 percentage point and 0.8 percentage point, respectively.

Experts raised worries on the reverse trend in growth and inflation.

“It seems South Korea is entering a low-growth phase amid the eurozone issue and slowing growth in China and the United States,” said Shin Min-young, a researcher at LG Economic Research Institute.

The concerns come on the heels of recent downgrades on the country’s economic growth outlook.

Growing views that South Korea’s potential growth rate is likely to hover below 4 percent, while inflation surpasses the figure bolstered the negative sentiment.

Some market watchers said if an early resolution to Europe’s persisting debt problem does not emerge, the slowing growth trend may last until the first half of next year.

But others said the chance of stagflation, in which the inflation rate soars amid slowing growth, is unlikely.

“Next year, prices are likely to trend lower, while economic growth stays at a similar level as this year. It would be a hasty conclusion to forecast stagflation,” said Kim Yoon-gee, an economist at Daishin Economic Research Institute.



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