Korea's central bank said Tuesday that the local economy is likely to underperform compared to its long-term growth trend by the end of next year on falling exports and weak domestic demand.
The Bank of Korea (BOK) said in a report to lawmakers that the gross domestic product (GDP) gap is likely to marginally stay in negative territory until 2013, meaning soft growth momentum and easing inflationary pressure.
The GDP gap refers to the difference between actual GDP and potential GDP, or the maximum possible growth rate at which an economy can grow without triggering inflation. The BOK cut the key rate to 3 percent in July, citing that the GDP gap had crawled into negative terrain.
According to the estimates by the central bank, the country's GDP gap is expected to stay at minus 0.2 percent each in the third and fourth quarters of the year.
The comparable figures for the first and second quarters of the year stood at zero and minus 0.4 percent, according to the estimates.
"The GDP gap will stay in the negative terrain through next year standing at minus 0.3 percent in the first half and minus 0.1 percent in the second half of next year," the central bank said.
Many economists expect the South Korean economy to grow in the 2-percent range this year, lower than the BOK's 3 percent growth estimate, due to faltering exports and sluggish domestic demand. The BOK's 2013 growth forecast stands at 3.8 percent.
The BOK plans to unveil its revised 2012 and 2013 growth estimates on Thursday when it will also hold a monthly rate-setting meeting.
Many analysts are betting on this year's second rate cut in October as Asia's fourth-largest economy is losing steam.
A BOK official said that if the BOK revises down its growth forecasts, the GDP gap could slip further into negative territory. A long streak with a minus GDP gap means that the economic recovery is being delayed.
The BOK said last week in its monetary policy report that it will manage the key rate to help the local economy recover to its long-term growth trend while making efforts to maintain price stability.
Analysts interpreted the policy report as a sign that the BOK is determined to take actions to shore up the economy if necessary.
A set of economic data pointed to weakening economic growth and the country's consumer inflation remained subdued, giving room for the BOK to cut the rate this month, analysts said.
Industrial output posted on-month falls for the third straight month in August and exports, a backbone of the Korean economy, fell on-year for the third straight month in September.
Despite the economic slowdown, the local currency has appreciated more than 3.5 percent to the dollar this year, raising concern a stronger won may crimp already-faltering exports. (Yonhap)
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