Korean Economy Is Bottoming Out
KDI Warns of Growing Inflationary Pressure
By Lee Hyo-sik
Staff Reporter
The Korean economy is pulling itself out of a year-long economic slump on recovering domestic spending and will become stronger, but inflationary pressure may build up in the second half, the state-run Korea Development Institute (KDI) reported, Thursday.
It predicted the economy will expand 4.4 percent this year from a year earlier as growing private consumption and corporate investment will offset a slowdown in exports. The latest growth forecast is the same with its projection made late last year.
``The economic downturn is coming to an end,'' it said. Korea's gross domestic product (GDP) had slowed since the first quarter of 2006 when the output grew 6.3 percent.
The institute said despite slowing exports, recovering domestic demand and corporate spending are expected to lead stronger economic activities into the latter half of the year.
It raised its outlook on domestic consumption for this year, citing improving consumer sentiment over the past few months. According to the National Statistical Office (NSO), the index measuring consumer confidence in economic and living conditions for the next six months increased to 100.1 last month, marking the first rise above the benchmark since April 2006 when the index stood at 100.6.
It raised domestic consumption growth projection to 4.2 percent this year from the earlier prediction of 3.9 percent. Also, corporate investment is expected to jump 5.7 percent, up from the previous 4.8 percent forecast. But the institute downgraded export growth to 10.5 percent from 11.9 percent.
The report is also in line with projections made by many private research institutes that the economy will pick up steam in the latter half of the year.
Hyundai Research Institute (HRI) said that domestic demand will replace exports as the main growth engine this year as exports are forecast to slow amid a global economic slowdown, adding consumer spending will likely determine the extent of expansion this year.
The KDI noted the global economy has continued to show a solid performance, but a number of negatives, including rising international oil prices, could adversely affect Asia's fourth largest economy.
It called on the government to closely monitor internal and external negatives, and maintain coherent macroeconomic policies.
``We think there is no need for Bank of Korea (BOK) to change its monetary stance at the moment. But the central bank should pay close attention to the possibility that consumer prices may increase at a faster pace in the future,'' the institute said.
The BOK on Thursday kept its benchmark interest rate steady at 4.5 percent for the ninth straight month.