Central Bank May Cut Growth Target for 2008
By Na Jeong-ju
Staff Reporter
The Bank of Korea (BOK) is coming under growing pressure to lower its 2008 economic growth outlook further as high prices of crude oil and other raw materials and a U.S. economic slowdown weigh on exports, the country's main growth engine.
The central bank cut its economic growth forecast for this year to 4.7 percent from its previous forecast of 5 percent in December, citing the fallout of U.S. subprime mortgage problems and rising oil prices.
The BOK's growth calculation is based on the assumption that the average price for oil will be $81 a barrel this year, and the global economy will overcome risks to maintain solid growth. However, the average import price reached $89.6 in January.
The International Monetary Fund also lowered its global growth projection for this year to 4.1 percent from 4.4 percent last month, the weakest performance in five years, saying the crisis in the U.S. subprime market was the cause for the downward revision.
A BOK economist says it has no plan to cut its annual growth forecast at the moment, adding it is too early to say how the country's economy will react to global downside risks. However, it is true that the country faces growing downward pressure and is being exposed to greater external risks, he added.
According to the Ministry of Commerce, Industry and Energy Friday, the country posted a trade deficit of $3.38 billion in January, which was higher than the $2 billion earlier forecast, mainly due to soaring oil prices. Exports rose 17 percent from a year ago to $32.8 billion, while imports shot up 31.5 percent to a record $36.2 billion, it said.
President-elect Lee Myung-bak Sunday told his Presidential Transition Committee to cooperate with the government in tackling the rising trade deficit and inflation. Lee pledged to boost growth rate by 7 percent during his campaign period, though he revised this to 6 percent after his victory.
The commerce ministry warned of a dip in export growth this year, saying economic uncertainties resulting from the subprime crisis could negatively affect the global economy and push oil prices higher.
Regarding macroeconomic conditions, the BOK said the economy is still maintaining an upward momentum with exports and industrial output posting solid gains.
The central bank forecast that economic growth will continue based on robust exports and rebounding domestic consumption, but cautioned that external variables were problematic.
Private think thanks have raised concerns that the country's growth may slow this year, citing concerns about a recession in the United States. A U.S. slowdown will dent Asian exports, two-thirds of which are goods and services shipped to non-Asian markets.
The 4.7 percent annual growth means the country's growth will fall for the third straight year. On top of weaker growth, the current account is expected to record a shortfall for the first time since the 1997 Asian financial crisis, while consumer prices will gain faster this year, according to institutes.
``Rising oil prices are expected to weigh on the global economy and raise inflationary pressure,'' said Kim Jae-chun, head of the BOK's Research Department. ``External risks may exacerbate downward pressure on the local economy.''