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Local think tank ups Korea's growth forecast on exports, investments

A local private think tank said Sunday it has raised its growth outlook for South Korea this year, helped by increased exports and facility investments.

The Korea Institute of Finance projected the country's gross domestic product to increase by 2.8 percent for 2017, higher than its earlier estimate of 2.5 percent growth forecast in October.

It said the economy should expand 2.6 percent in the first half followed by 2.9 percent gains in the July-December period.

The upward revision came as the global economic recovery helped the country's shipments and facility investment, the KIF said in a report.

(Yonhap)
(Yonhap)

Exports -- one of the major pillars for Asia's fourth-biggest economy -- increased 1.9 percent in the first quarter from a quarter earlier. The KIF said the country's outbound shipments will expand a solid 3.7 percent compared to 2.1 percent tallied in 2016.

Facility investment another key indicator, expanded 4.3 percent quarter-over-quarter in the January-March period, according to the Bank of Korea.   

Earlier this month, the BOK raised its growth outlook for South Korea to 2.6 percent from its previous estimate of 2.5 percent for this year.

State-run Korea Development Institute also revised its growth prediction for the country to 2.6 percent, up from an earlier 2.4 percent. The International Monetary Fund lifted its outlook by 0.1 percentage point to 2.7 percent.

Raising growth estimates is a good sign for the East Asian country that has been struggling with weak growth over the past few years.

On a cautionary note, the KIF said the country's growing household debt can slow domestic demand and pose risks to the Korean economy if interest rates begin to rise.

Household debt stood at 1,344 trillion won ($1.17 trillion) at the end of December.

For this month, the central bank kept its key rate at an all-time low of 1.25 percent for the 10th consecutive month after dropping the rate to its lowest level to bolster the lackluster Korean economy.

"The country's household debt growth increased at a slower pace in the first quarter thanks to government measures to curb lending, yet this matter remains a source of concern," a financial regulator said. He emphasized that the matter needs to be managed carefully to ensure sustainable growth for the country.

Besides adjusting the growth estimate, the KIF called for a continuous currency swap arrangement with the United States, that can strengthen the country's financial security net.

In an independent report the think tank stressed that while Washington sometimes accuses Seoul of currency manipulation, countries like South Korea must live under the fear of a sudden outflow of foreign reserves that makes it necessary to hold onto a lot of reserves.

"If Seoul has an extended currency swap system in place with the United States, there is little need for it to stockpile on reserves that can reduce tensions between the two trading partners," it said.

There is a pressing need to persuade Washington of the merits of a swap arrangement, it said. (Yonhap)

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