Economy to Slow Down in 4th Quarter, Inflation Outlook Raised to 3.6%


By Kim Yon-se
Staff Reporter

The Bank of Korea (BOK) on Thursday lowered the growth target and raised the inflation outlook as the export growth rate shows signs of slowing amid sluggish domestic demand and a rise in oil prices.

In its revised macroeconomic outlook, the central bank predicted the growth rate will slow to 5 percent in the second half, down from its initial estimate of 5.6 percent.

Inflation as measured by consumer prices is expected to rise to 3.6 percent this year, up from the original prediction of 2.9 percent due to surging oil prices and price hikes among public utilities.

Consumer prices will rise by 3.9 percent in the second half of this year, up from the 3.3 percent rise in the first half, BOK Governor Park Seung told reporters yesterday.

The current account surplus will be around $22 billion this year, up from its initial estimate of $6 billion, the BOK said.

But the central bank believes 5-percent growth is possible this year. The prediction is not greatly different from the estimate made by the Ministry of Finance and Economy (MOFE) Wednesday.

Finance-Economy Minister Lee Hun-jai predicted the growth rate would hover around 5.3-5.5 percent this year. But the government is more optimistic than the central bank in its economic outlook.

The BOK estimates the economy will expand 5 percent in the second half of this year after growing by 5.4 percent in the first half, with a special warning given for a variety of negative indications.

In April, the central bank said the nation’s GDP growth would come to 5.4 percent. But it decided to adjust the prediction downwards amid the prolonged slump in domestic demand and a surge in oil prices.

The BOK warned the pace of economic growth may become sluggish during the fourth quarter of the year if consumption and facilities investment fail to gain momentum.

Consumption and facilities investment fell for the fourth consecutive quarter since the second quarter of 2003 and the slump has reportedly continued in the second quarter of 2004, according to the BOK economists.

Furthermore, exports, the main motive power for the economy, will likely see a slowing growth rate in the coming months, they said. BOK economists said export growth would measure 14.5 percent in the second half, compared with 27.4 percent growth in the first half.

At a meeting of its Financial Monetary Committee at BOK headquarters in downtown Seoul yesterday, the central bank kept its overnight call rate unchanged at 3.75 percent for July, citing the low domestic demand.

The key interest rate has remained flat since it was cut by 0.25 percentage point from 4 percent a year ago. Amid interest hikes in major nations, including China, Japan and the United States, how Korea will be able to attract investors with low interest rates is currently a concern.

kys@koreatimes.co.kr