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SEJONG, Nov. 19 (Yonhap) -- South Korea's economy is expected to grow 2.8 percent this year, a state-run think tank forecast Tuesday, revising up its growth outlook slightly based on the optimism that the economy has entered into a "recovery phase" amid improving export growth.
The growth estimate by the Korea Development Institute (KDI) is higher than the 2.6 percent gain predicted in May. The think tank also hiked its growth estimate for next year from 3.6 percent to 3.7 percent, though it is slightly lower than the government's 3.9 percent growth outlook.
"Our assessment is that the economy has recently entered into a steady recovery phase," the KDI said in a report. "Exports also show signs of steadily improving and we expect that the current improving trend will continue going forward, helped by the rebounding global economy."
The relatively optimistic views come as South Korea's economy is showing signs of gaining traction in recent quarters.
South Korea's gross domestic product increased 1.1 percent in the July-September period from three months earlier, after expanding at an identical 1.1 percent pace in the second quarter. The economy grew less than 1 percent on-quarter for the previous eight straight quarters.
The KDI admitted that some "dormant" risk factors including the negative impact of the U.S.'s push to scale down stimulus measures could weigh on the global economy but advanced countries will continue to lead the overall rebound, presenting favorable market conditions for Korean exports going forward.
The think tank expected that South Korea's exports, which make up about a half of the country's economy, will grow 2.9 percent on-year in 2013 and expand 4.2 percent in 2014. It, however, expected that imports will shrink 1.3 percent this year, a stark contrast with a 2.2 percent gain predicted in May.
The current account balance, a broad measure of trade and investment flows, is expected to post a surplus of around US$69 billion this year, sharply revised upward from May's $39.7 billion. For 2014, the surplus will stand at $51 billion.
The KDI expected private consumption to grow 2 percent on-year in 2013 and its growth rate will accelerate to 3.6 percent next year. It added that facility investment will shrink 2.5 percent this year but bounce back to an 8.4 percent gain next year.
South Korea's consumer inflation will likely stabilize at 1.1 percent this year, which is lower than the think tank's earlier prediction of 1.8 percent. The KDI expected that the country's jobless rate will stand at 3.2 percent compared with 3.3 percent it forecast in November.
The KDI recommended the government to keep its current policy measures supporting economic recovery for the time being, but adjust its policy direction to strengthen its fiscal health if the recovery continues.
The think tank also said that it is "desirable" to keep the country's key interest rate at the current level of 2.5 percent "for the time being" -- possibly until May next year -- as long as the economy is not jolted by any unexpected shock.
For the recently lowered inflation rate, it advised the government to caution against a prolonged subdued price growth, while considering lowering its current inflation target band of 2.5-3.5 percent in the mid- and long-term.
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