The Bank of Korea said Friday that the Korean economy will expand 3.7 percent next year, a cut from the forecast of 4.6 percent the central bank made in July, citing a significant drop in exports due to contraction of the global economy.
“This is not a conservative prediction,” the bank said, adding, “We cannot rule out the possibility that the growth rate could be even lower.”
In its 2012 economic outlook released Friday, the central bank predicted growth for this year will hit 3.8 percent and 3.7 percent next year. If the bank`s predictions prove accurate, Korea`s growth next year will be the lowest since 2.8 percent in 2003, when the bursting of the credit card bubble occurred, 2.3 percent in 2008, when the global financial crisis broke out, and 0.3 percent in 2009.
The Bank of Korea said economic growth would reach the 4-percent level next year in July, but has significantly lowered its growth target in five months. It gave no hints that suggest the eurozone crisis will subside soon.
The bank`s growth target is even lower than that of the state-run Korea Development Institute. The institute presented next year`s growth target at 3.8 percent, while Samsung Economic Research Institute and LG Economic Research Institute both forecast 3.6 percent.
Lee Sang-woo, Lee Sang Woo, director-general of its research department, said, “3.7 percent is the most probable projection at this point in time, and chances are high that the rate will be adjusted downward from that number rather than upward,” adding, “We cannot claim the prediction is a conservative one.”
The bank expressed a pessimistic outlook for the Korean economy because it expects export growth will significantly slow due to a slump in the global economy. Lee said, “Korea`s exports in the fourth quarter this year could post negative growth by volume, though by a slight margin,” adding, “As this trend will likely continue through the first quarter next year, economic growth in that quarter could decline to a very low level.”
Korea`s current account surplus next year is expected to sharply decline to almost half (13 billion US dollars) from this year (27.2 billion dollars). Facility investment growth will likely fall from 4.5 percent this year to 4.2 percent next year due to weakened investment sentiment among companies.
Growth of consumption in the private sector will likely expand from 2.5 percent this year to 3.2 percent next year due to the introduction of the five-day school week and a fall in inflation growth despite the slumping economy.
Consumer inflation is forecast to fall from 4 percent this year to 3.3 percent, down from the earlier target of 3.4 percent. The number of new hires will hit 280,000 next year, down from 400,000 this year.
Shin Min-yeong, chief of the economic research division at the LG think tank, said, “The economic growth target that the Bank of Korea presented in July was way too high in light of reality,” adding, “The 3.7-percent growth target means that next year is expected to see economic growth trends similar to those in this year`s second half.”