IMF's Lowered Forecast for Korea May Be Self-Fulfilling, Analysts Fear

Following a series of revisions by domestic think tanks on their economic growth forecasts, the International Monetary Fund lowered its projection for the Korean economy to 3.5 percent. But the government continues to maintain its 5 percent growth forecast amid growing concern over how the revisions themselves will affect the economy.

Analysts believe that a percentage-point decrease in the growth rate will translate to approximately 70,000 more people out of jobs. Currently, unemployment stands at nearly 1.2 million, or 5 percent. Analysts suggest that the forecasts should be taken more cautiously as an indication that economic conditions remain precarious and may deteriorate. "A growth rate of 3.5 percent means the economy is very close to a recession," Samsung Economic Research Institute's Hong Sun-yeong said. "So when we can still expect to have a 3.5 percent growth for the first quarter, the IMF's forecast is overly pessimistic in that sense."

An official at the Ministry of Finance and Economy agreed. "We have communicated to the IMF that lowering the projection as it did can itself adversely affect what can actually improve," he said. "But the fund has maintained its emphasis on external factors."

The IMF has put particular emphasis in its world economic forecast on countries' dependency on the U.S. and Japanese economies. It has also remained cautious about recent improvements in business survey indexes and other indicators. Words have not been followed up by actions, it believes, as capital investment and consumer spending show few signs of recovery.

The government's adherence to its 5 percent forecast, said another official, "is in part a representation of the government's confidence in the various measures it has taken. However, we will be reviewing the forecast sometime in June as we take a comprehensive look at the economy."

by Song Sang-hoon