By Lee Hyo-sik
Staff Reporter
Surging raw material costs and other external negatives will slow the local economy in the coming months, the Ministry of Strategy and Finance said Thursday.
In its monthly economic assessment report, the ministry said the world's 13th largest economy has maintained an upward momentum since the second quarter of last year despite unfavorable external conditions, including a U.S. economic slowdown.
It said industrial production expanded 11.8 percent in January from a year earlier, while the services industry output rose 7.7 percent year-on-year. Retail sales also increased 4.7 percent in January from a year ago, up from a 2.6 percent gain the previous month.
``But the sales figure will likely fall in February as rising oil and other raw material costs sharply increased the prices of goods and services, cutting consumer spending,'' it said.
The ministry also said construction investment will continue to remain sluggish for the foreseeable future, while import growth will outpace that of exports as the country has to pay more to bring in crude oil and other commodities because of the price increases.
``International prices of oil and other raw materials will likely continue to show an upward curve, worsening the country's current account balance. Consumer prices are expected to grow by more than 3.5 percent down the road,'' it said.
In January, the country posted a current account deficit of $2.6 billion, the largest since January 1997 when the shortfall stood at $3.13 billion. Also, consumer prices rose 3.6 percent in February from a year earlier, higher than the Bank of Korea's target range of 2.5 to 3.5 percent.
The government's gloomy economic outlook came as major economic research institutes at home and abroad revised down Korea's 2008 economic growth forecast to as low as the 3 percent range.
They said a global economic slowdown will dampen Korea's outbound shipments, and high raw materials costs will raise the prices of goods and services here, weakening domestic consumption.
Earlier this week, Strategy and Finance Minister Kang Man-soo also said it will be difficult for the government to achieve its growth target of 6 percent this year, citing the external negatives.