By Kim Yon-se
Staff Reporter

Deputy Prime Minister and Finance-Economy Minister Lee Hun-jai has predicted the economy would expand to between the range of 5.2 and 5.3 percent next year, overriding pessimistic views from analysts at home and abroad.

Lee also swept aside Morgan Stanley’s projection that the Korean economy has faced the danger of ``stagflation,’’ a term describing the combination of slow economic growth and rising consumer prices, during his speech at a meeting of economic-related ministers at the Kwachon Government Complex on Friday.

He said the anticipation of stagflation has come from misunderstanding of the term and the local market situation. ``It is improper to mention stagflation as the current price hike is happening not because of structural factors but because of temporary factors.’’

While the U.S.-based investment bank Morgan Stanley has downgraded its growth outlook for 2005 to 3.8 percent from its initial estimate of 4.3 percent, the finance-economy minister maintains that more than 5 percent GDP growth is possible in both 2004 and 2005.

``Even though oil prices (based upon Dubai crude) would surpass $35 a barrel, there should be no problem achieving the 5 percent growth target this year,’’ he said, adding that it is difficult for the government to take acute measures against the soaring oil prices.

His anticipation is relatively rosy compared with outlooks for 2005 from U.S.-based Consensus Economics (4.9 percent), the Bank of Korea (4.8 percent), Citigroup (4.5 percent), the LG Economic Research Institute (4.4 percent) and the Samsung Economic Research Institute (3.7 percent).

In addition, the Bank of Korea is considering revising its macroeconomic predictions down for 2004 and 2005 once more as the world’s crude oil prices soar to their highest level.

The 2005 GDP growth forecast of the Ministry of Finance and Economy is in line with that of Chong Wa Dae (up to 6 percent) and the International Monetary Fund (5.3 percent)

Lee stressed the projection is possible as corporate investment and consumption are showing signs of recovery, adding that exports will post $21 billion a month by early next year on the average.

Commenting on General Electric’s investment totaling 1 trillion won in Hyundai Capital, Lee said foreign investors have a brighter outlook on the Korean market despite cynical views of the economy from local private thinks tanks.

Though Lee said the target of 5 percent is possible despite record high oil prices, he cast anxiety over the financial health of small- and medium-sized enterprises damaged by the trend.

Morgan Stanley, which has warned of stagflation and 3.8 percent growth in 2005, also said the nation’s growth would stay at 4.6 percent this year.

The investment bank also predicted the Bank of Korea would not raise the call interest rate, despite surging producer and consumer prices, in consideration of sluggish domestic demand, and that the current interest rates of 3.75 percent would be maintained over the next year.

kys@koreatimes.co.kr