The Korean economy is expected to grow at a slower rate than the government's forecast next year, a state think tank said Sunday, calling for increased fiscal spending and interest rate cuts to counter an economic slowdown.
The Korea Development Institute (KDI) predicted the economy, Asia's fourth-largest, would expand at an annual rate of 3 percent in 2013, lower than its earlier 3.4 percent forecast made in September. The KDI's outlook is also lower than the government's prediction of 4 percent.
The think tank also said the Korean economy is likely to expand 2.2 percent this year, a downgrade from its previous estimate of 2.5 percent.
In the first half of next year, Korea's gross domestic product is projected to gain 2.2 percent on-year due to persistent global uncertainties, with the growth rate rising to 3.7 percent in the second half.
"Growth of exports will likely expand next year thanks to a gradual recovery in the global economy," the KDI said. "Domestic consumption is also expected to continue to improve on such factors as the local currency's ascent against the U.S. dollar."
The think tank, however, said the local economy may continue to be weighed down by the persistent eurozone crisis, the U.S. fiscal cliff and a possible rise in international oil prices stemming from increased geopolitical risk in the Middle East.
On a domestic front, the deepening of a property slump could make a dent in private consumption and construction investment, delaying the local economy's recovery, the KDI warned.
Exports, which account for more than 50 percent of South Korea's economic growth, are predicted to expand 6.9 percent on-year in 2013, compared with a 3.6 percent increase for this year, with imports likely to gain 5.9 percent.
The current account balance, a broad measure of trade and investment flows, is expected to post a surplus of around US$30 billion next year.
The KDI said private consumption will likely gain 2.7 percent next year from 2012, an improvement from this year's 1.7 percent increase.
Corporate capital spending is forecast to grow 5.3 percent on-year in 2013, with construction investment likely to increase 2.3 percent.
South Korea's consumer inflation is expected to reach 2.3 percent next year, slightly higher than this year's 2.2 percent, and the country's jobless rate will likely inch down to 3.2 percent from 3.3 percent, according to the KDI.
In order to help the economy's recovery next year, the government should boost its fiscal spending and the central bank needs to cut interest rates additionally.
The government is seeking to spend 342.5 trillion won ($316 billion) next year, up 5.3 percent from this year. The National Assembly has yet to pass the government's budget bill.
Early this month, the Bank of Korea left the benchmark 7-day repo rate unchanged at 2.75 percent for November. The bank cut the rate in July and October in a bid to bolster the slowing economy. (Yonhap)