Korea’s GDP growth to slow to 4.5% in 2011

Economy braces for cocktail of ‘slowing growth, high inflation’ By Kim Jae-kyoung The Bank of Korea (BOK) forecast Friday that Korea will see its economic growth slow to 4.5 percent in 2011, due to the waning effect of an economic stimulus and lingering uncertainties overhanging the global economy. It predicted that the economy will expand 6.1 percent this year, the fastest growth in eight years since it grew 7.1 percent in 2002. It expects consumer-price inflation to reach a three-year high of 3.5 percent next year The outlook implies that Asia’s fourth largest economy will face a deadly cocktail of “slowing growth” and “high inflation,” forcing policymakers to choose a compromise policy mix to tackle the combination. The central bank said that the economic growth will fall to 3.8 percent in the first half of next year before bouncing back to 5 percent in the second half in line with a recovery in the global economy. It predicted that GDP will expand 4.7 percent in 2012. “Next year, the Korean economy is expected to continue an upward trend but the pace will be moderate,” Lee Sang-woo, director-general of the BOK’s research department, said at a press conference, adding that the 2011 numbers will be close to the potential growth level. “There is a considerable degree of uncertainty for the growth path including heightened geopolitical risks and the eurozone debt crisis,” the BOK said in a statement. The bank cited sluggish exports and rising prices as the biggest domestic threats. The central bank expects export growth to plunge to 9.6 percent next year from this year’s estimated 16.1 percent, while revising up its 2011 forecast for inflation to 3.5 percent, from an earlier forecast of 3.4 percent. In the first half of next year, inflation is forecast to reach 3.7 percent before slowing to 3.3 percent in the second half. The core inflation, which excludes volatile oil and food prices, also will likely shoot up to 3.1 percent next year, higher than the 1.8 percent gain in 2010. Too optimistic? The central bank’s growth outlook is considered too rosy, according to market experts, given that unfavorable external conditions are likely to hamper the country’s growth. The economy has been losing momentum as the GDP grew only 0.7 percent in the third quarter, the slowest pace in one and a half years. The growth is estimated to further slow to 0.4 percent in the fourth quarter, according to the BOK. “As for the 2010 growth forecast, I think 6.1 percent is too optimistic,” ING Group senior economist Tim Condon told The Korea Times, citing weak industrial production in October The 2011 forecast by the central bank is higher than predictions by major organizations such as the OECD (4.3 percent), the International Monetary Fund (4.5 percent) and the Korea Development Institute (4.2 percent). Economists stressed that the government and the central bank should seek to employ a policy mix to tackle the slowing growth and high inflation, meaning that the central bank will be unable to normalize the monetary policy anytime soon. Nomura Securities economist Kwon Young-sun said that with slowing growth and twin imbalances of a large current account surplus and high inflation, policymakers will choose a compromise policy mix, — implementing modest fiscal consolidation, tightening macro-prudential measures further, allowing the Korean won appreciation and raising policy rates slowly. “The economy is vulnerable to sudden changes in global economic conditions, credit markets and commodity prices. Domestically, if the BOK hikes rates without allowing the won’s appreciation, it may leave Korea’s twin imbalances unresolved, failing to contain inflation,” he said. 한은 내년 경제성장률 4.5%로 둔화 전망 한국은행은 10일 시들해진 촉진효과와 잔존하는 세계경제시장의 불확실성으로 인해 내년 경제성장률이 4.5%를 기록하면서 올해보다 둔화될 것으로 전망했다. 한은은 올해 국내총생산 성장률이 6.1%를 기록 2002년 7.1% 성장을 달성한 이후 최고 성장율을 달성할 것으로 내다봤다. 이러한 전망은 아시아에서 4번째로 큰 한국경제가 성장 둔화와 높은 인플레에 직면하여 정책당국자들로 하여금 절충적인 경제정책을 세우도록 할 것이라는 것을 암시한다. 한은은 성장률이 내년 상반기에 3.8%를 기록한 뒤 하반기에 세계경제의 회복으로 5%로 상승하는 상저하고 양상을 보일 것이라고 설명했다.

kjk@koreatimes.co.kr