By Kim Jae-kyoung
The central bank has raised its 2010 growth outlook for the Korean economy to 6 percent from the previous projection of 5.9 percent despite bleak data indicating that the economy will undergo an uneven recovery.
At a breakfast meeting with local CEOs Friday, Bank of Korea (BOK) Governor Kim Choong-soo forecast that economic growth will hover around 6 percent as the business environment has improved over the past few months.
“If other variables remain unchanged, chances are the economy will grow more than 6 percent this year on the back of robust exports,” Kim said. “We are now keeping a close watch on the U.S. Federal Open Market Committee’s additional stimulus measures due next month.”
He also forecast that economic growth will surpass the potential growth level of around the mid-4 percent next year.
However, the top banker’s outlook is deemed too upbeat, given that the latest key data suggest that Asia’s fourth largest economy is clearly losing growth momentum amid lingering uncertainties overhanging the global economy.
On Wednesday, the central bank reported that the economy grew 0.7 percent in the third quarter from a quarter ago, the slowest growth in one year.
Manufacturers' business confidence also fell to the lowest level in nine months for November on concerns that a stronger local currency may hurt exports, according to the central bank, Friday. The index of manufacturers' outlook on business conditions reached 92 for November, down from 99 for October.
The nation’s industrial output growth is also losing steam. According to a report by Statistics Korea, production in the mining and manufacturing sectors increased 3.9 percent last month from a year earlier, compared with a 16.9 percent gain in August. From the previous month, industrial production contracted 0.4 percent in September, the report said.
Regarding the currency market, Kim said that the recent agreement by the G20 to stop a currency devaluation race is expected to ease currency volatility.
“G20 leaders will discuss a macroeconomic policy framework to minimize the side effects of excessive capital flow. I believe that this kind of discussion will help stabilize foreign exchange rates, and have a positive impact on trade,” Kim said.
Over the last weekend, finance ministers and central bank governors from the G20 agreed to prevent a “currency war” and reform the International Monetary Fund (IMF). The G20 also agreed to reduce trade imbalances and set a guideline for current account balances for each nation.
Kim said Korea may not need to act to adjust exports and imports even if indicative guidelines for setting the numerical target for the current account are drawn up down the road.
Finance chiefs of the G20 agreed to maintain the size of current account surpluses or deficits at sustainable levels in a bid to address global imbalances.
kjk@koreatimes.co.kr