Europe contagion seen as top external threat in H2

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Europe contagion seen as top external threat in H2

Most Korean economists believe the spreading euro zone debt crisis will be the biggest drag on the local economy in the second half of 2012, a poll showed yesterday.

According to the survey of 41 economists, 73 percent of respondents said contagion from Europe will still pose the greatest external threat to Asia’s fourth-largest economy during the July-December period.

Another 10 percent cited slowing growth in China and other emerging economies, while 2 percent picked rising prices of oil and raw materials, according to the survey taken by the Federation of Korean Industries, the largest business lobby in Korea.

The poll comes as Korea’s export-driven economy has begun feeling the pinch of cooling global trade sparked by trouble in the euro zone.

According to the findings, more than half of those polled view large household debt as the biggest domestic risk for the Korean economy as it usually puts a dent in consumer spending.

Household debt is hovering at around 1,000 trillion won ($860 billion), according to a government tally.

Hoping to curb household borrowing, the government has been pressuring banks and other financial institutions to stop aggressively expanding their lending. In response, borrowing from non-banking institutions with high interest rates has skyrocketed. Experts now expect household debts to be a major risk factor if the economy takes a tumble.

The survey also found that the domestic economy is projected to grow 3.6 percent on-year in the second half, or 3.3 percent for all of 2012.

The full-year projection is lower than both the 3.5 percent prediction by the Bank of Korea and the government’s estimate of 3.6 percent.

The government and the central bank expect improvements in the domestic market to prop up economic growth to match last year’s figure. Last year, the figure fell sharply from 2010 - when it surpassed 6 percent - as exports remained robust despite suffering from the unexpected lowering of the U.S.’ credit rating, as well as the sovereign debt crisis in Europe.

The economists forecast that consumer prices in Korea will grow 3 percent from a year earlier in the second half, and 3.1 percent for the whole of 2012.

Seoul expects inflation to increase 3.2 percent on-year in 2012.

It settled at 4 percent last year, the upper limit of the Bank of Korea’s 2-4 percent target band.

By Lee Ho-jeong, Yonhap [ojlee82@joongang.co.kr]

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