By Oh Young-jin
The Bank of Korea (BOK) cut its economic growth forecast for next year to 3.7 percent from its earlier projection of 4.6 percent, Friday.
The central bank also revised down its growth estimate for this year to 3.8 percent from its earlier estimate of 4.3 percent in July.
The downward adjustments in growth rates reflect that the European debt crisis coupled with the U.S. economic slump will likely hobble the global economy, hurting Korean exports, its growth engine, the BOK said, adding that growth will be restored to 4.2 percent in 2013.
The central bank said inflation would ease to 3.3 percent in 2012 from 4 percent this year, citing easing raw materials costs.
“The downward revision comes as export growth will likely slow amid the worsening of the eurozone debt problems, and weakening consumer and investment confidence,” a central bank official said.
BOK’s downward adjustments follow those by private and state think tanks and international organizations. Their consensus is that Korea’s growth will be brought to below 4 percent.
On Thursday, the BOK kept its key interest rate unchanged at 3.25 percent for the sixth straight month.
BOK Gov. Kim Choong-soo said Thursday that there is no change in the central bank’s stance on policy normalization, with some analysts arguing the central bank lost its chance to adjust the rate when it should have.
Domestic demand remained stagnant in the third quarter as households were reluctant to spend money because of economic uncertainties and high inflation.
According to the BOK, exports, which account for about 50 percent of the Korean economy, are forecast to expand 5 percent in 2012, slowing down from an estimated 11.6 percent expansion this year.
Private spending is expected to grow 3.2 percent in 2012 after gaining 2.5 percent in 2011.
Construction investment is projected to gain 2.8 percent, compared with an estimated contraction of 5.3 percent this year.
Facility investment is expected to advance 4.2 percent, lower than the previous forecast of a gain of 4.5 percent.
The BOK lowered its forecast for job growth for next year, saying that the number of employed will grow by 280,000, down from an estimated expansion of 400,000 in 2011.
The central bank also cut its estimate for the country’s current account surplus to $13 billion from this year’s $27.2 billion amid the general global downturn.
Oh Young-jin is The Korea Times' publisher and president. He began to work at The Korea Times in 1988 as a sports writer. Then, he worked as a reporter and later as editor at the City Desk, Business Desk and Politics Desk. He worked as chief editorial writer before taking the current position. He has a keen interest in politics as well as defense affairs.