By Na Jeong-ju
Staff Reporter


The economy is expected to grow 5 percent next year as recovery in domestic demand gathers momentum, the Bank of Korea (BOK) said. It will be the fastest pace since 2002 when it expanded 7 percent.

The central bank’s forecast for next year’s gross domestic product (GDP) growth is in sync with the government’s target. But its forecast is optimistic compared to those of private economic institutions, which project a growth rate below 5 percent in 2006.

The BOK revised up its forecast for the 2005 full-year growth rate to 3.9 percent from the previous 3.8 percent, citing a stronger-than-expected growth figure in the fourth quarter. It expects fourth quarter GDP to grow 4.8 percent from a year earlier and 1.2 percent from the previous quarter.

``Exports will remain strong, and private spending will recover at a faster rate, fueling growth,’’ said Kim Jae-chun, head of the BOK’s economic research bureau, at a press briefing.

Kim said external factors will become more favorable to the local economy.

``Oil prices will soften and foreign exchange rates will be stabilizing next year. The global economy will also maintain a modest growth, positively affecting our exports.’’

But private economists are less sanguine about the outlook. The Samsung Economic Research Institute expects the economy to grow at 4.8 percent next year. The LG Economic Research Institute expects a 4.6 percent growth. Foreign financial institutions are more conservative about the outlook, with a growth rate projected at 4.3 percent by Citigroup and Deutsche Bank.

The bank said the country will see higher consumer prices next year due to tax hikes for consumer goods planned late next year amid stronger domestic demand. Consumer prices are forecast to rise 3.0 percent next year from the 2.7 percent estimated for this year.

The BOK forecasts exports will grow 10.3 percent to $315 billion next year on strong demand for information and telecommunication equipment. Imports are expected to grow 11 percent to $290 billion.

The current account surplus will fall to $16 billion from this year’s forecast of $17.5 billion. The bank expects private spending to expand 4.5 percent in 2006. Plant and equipment investment is expected to grow 5.4 percent, after growing 3.9 percent this year. Construction investment growth will be 1.7 percent next year from this year’s 0.3 percent.

jj@koreatimes.co.kr