Growth Forecast Is Lowered

The Bank of Korea on Thursday lowered its economic growth projection for this year to 3.8 percent and said inflation would surpass the government's 4 percent target.

The central bank said that it had cut its forecast for growth in gross domestic product from 5.8 percent, the projection it made at the end of last year. The new figure is even lower than the 4.3 percent growth estimate announced by the Korea Development Institute in April.

"We have lowered our forecast because the U.S. economy has been slow to rebound, unlike our original expectations," said Chung Myung-chang, an official at the bank.

Still, the central bank said that it expected the Korean economy to begin a recovery in the second half, considering the recently improving sentiments of companies and consumers. The bank forecast that the economic growth would slow in the third quarter to an annualized rate of 3 percent from 3.3 percent this quarter, before rising to 5.1 percent in the fourth.

The bank said that it expected inflation of 4.4 percent this year, due to the decline in the value of the won and more expensive oil imports. The government's goal is to keep rises in consumer prices this year within 4 percent.

The bank also forecast that this year's trade surplus would reach $13 billion, nearly triple the original estimate of $4.5 billion, due to the sharp decline in imports, despite the milder slowdown in exports.

Following the downward revision for the economy, the focus of public attention is now on whether the central bank will cut the call rate, a key interest rate.

"If we consider only economic growth, it would be appropriate to slash interest rates," an official at the bank said. "But that would not be such an easy decision, as inflation fears still exist."

by Cheong Chul-gun