Inflation Target Revised Up, Growth Projection Down
By Lee Hyo-sik
Staff Reporter
The government is set to revise down its 2008 economic growth projection on stagnant corporate investment and private consumption, while pushing its inflation target upward to reflect soaring prices of crude oil and other raw materials.
Some private analysts even caution if oil prices continue to surge in the second half of the year and Korea's outbound shipments decline sharply on a global economic slowdown, consumer price increase could exceed economic growth rate.
The Ministry of Strategy and Finance said Wednesday that it is carefully assessing current economic conditions at home and abroad to prepare the second-half economic management plan to be announced early next month, adding containing inflation under the government target of 3.3 percent will be difficult.
``Consumer price growth will surely exceed 4 percent in the first half of the year. With international oil prices showing no signs of abating for the foreseeable future, we have no choice but to revise the inflation target upward to the 4 percent range,'' a ministry official said.
In May, consumer prices rose 4.9 percent from a year earlier, the highest since June 2001 when prices jumped 5 percent, according to the National Statistical Office (NSO). Strategy and Finance Minister Kang Man-soo said Wednesday that consumer prices will likely increase at a faster pace in June, expressing concerns that private spending could shrink further.
The government is also widely expected to cut its official GDP growth forecast to below 5 percent from the current 6 percent early next month. It is likely to revise the number of newly created jobs down to around 250,000 this year from the current 350,000, as most companies are reluctant to hire new workers amid aggravating business conditions.
On Monday, Strategy and Finance Minister Bae Kook-hwan said Korea's growth rate will fall below 5 percent in 2008, adding the world's 13th largest economy will face a harder time in the latter half of this year and early next year.
On Tuesday, the International Monetary Fund (IMF) cut its 2008 economic growth projection for South Korea to 4.1 percent from an earlier 4.2 percent, citing slowing exports amid a global economic slowdown and sluggish domestic consumption.
Samsung Economic Research Institute (SERI) lowered its 2008 growth projection from 5 percent to 4.7 percent, while LG Economic Research Institute cut the forecast to 4.9 percent.
The Organization for Economic Cooperation and Development (OECD) recently forecast that the Korean economy will expand 4.3 percent this year, down from an earlier 5.2 percent prediction. The Bank of Korea Governor Lee Seong-tae also said the nation's gross domestic product will grow below 4.5 percent.
Economic research institutes project the economy will slow down sharply in the second half of the year from the first six-month period, probably at the steepest pace since 2003 when economic activities plunged in the latter six-month period in the wake of the credit card bubble.
SERI expects the GDP growth to fall to 3.8 percent in the second half from 5.5 percent in the first half, while the Korea Development Institute pushed down the economic growth rate during the July to December period to 3.8 percent, compared with 5.2 percent in the first half.
The IMF also projected the Korean economy will expand 3.1 percent from July through December, sharply down from the first half growth projection of 5.2 percent.