The Korea Herald

지나쌤

BOK cuts 2011 growth outlook to 4.3 pct

By 박한나

Published : July 15, 2011 - 09:05

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South Korea's central bank on Friday revised down its 2011 economic growth outlook on weaker domestic demand and construction investment, but raised its inflation projection on high oil and food prices.

The Bank of Korea (BOK) lowered its growth projection to 4.3 percent for the year from an earlier 4.5 percent estimate made in April. In the second half, the economy is expected to grow 4.7 percent, down from an earlier estimate of 4.9 percent.

But the central bank raised its inflation forecast to 4 percent from an earlier forecast of 3.9 percent. In the second half, consumer prices are expected to rise 3.8 percent, up from an earlier estimate of 3.6 percent.

The revised 2011 inflation marked the highest level since 4.7 percent in 2008. In the second quarter, Asia's fourth-largest economy is estimated to have grown 0.9 percent from three months earlier.

"There is a considerable degree of uncertainty for the growth path due mainly to Greece's debt crisis, the degree of improvement in U.S. labor and housing markets, and the monetary policy in the U.S.," the central bank said in a statement.

The BOK said downside risks to growth outweigh upside risks, given the potential spread of Europe's fiscal problems and a weakening U.S. economy.

The BOK's forecast came as the government revised down its 2011 economic growth projection to 4.5 percent from around 5 percent in late June. But the central bank's inflation projection is in line with the government's revised forecast.

The report came one day after the BOK froze the key interest rate at 3.25 percent, following a rate hike in June, due to heightened external economic uncertainty, including the eurozone debt crisis.

The South Korean economy is on the solid recovery track on strong exports, but patches of external economic uncertainty, including concerns about a slowing U.S. economy, are serving as downside risks to growth.

The global financial markets have been weighed down by fears that Greece's sovereign crisis might spread to Italy and Spain.

Federal Reserve Chairman Ben Bernanke said Wednesday the Fed is prepared to ease monetary policy if the economy worsens, underscoring concerns about the pace of the U.S. economy.

South Korea's consumer inflation is likely to sustain upward price pressure, driven by sustained economic growth and oil prices.

South Korea's consumer prices topped the upper ceiling of the BOK's

2-4 percent inflation target band for the sixth straight month in June.

According to the BOK, exports, which account for about 50 percent of the Korean economy, are forecast to expand 12.8 percent this year, up from a previous prediction of 11.2 percent. Private spending will likely grow 3.3 percent, compared with an earlier 3.5 percent growth estimate.

Construction investment is projected to contract 4.3 percent, compared with a previous estimate of a 1.5 percent gain. Facility investment is expected to advance 7.5 percent, higher than a previous forecast of 6.9 percent.

Analysts said as the BOK hinted at a rate increase at a measured pace, it is likely to raise the borrowing costs once or twice further within this year. (Yonhap News)