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Think Tank: S Korea GDP Seen +5.5% In 2010; Should Scrap Stimulus
SEOUL -(Dow Jones)- South Korea's state-run think tank on Sunday unveiled a much improved outlook for the nation's economy this year and next, saying a fast recovery in exports is leading the way to the improvement.
Korea Development Institute raised its growth forecast for gross domestic product in 2010 to 5.5% from 3.7% previously. It also revised up its forecast for this year to 0.2% expansion from its earlier forecast made in May for 2.3% contraction.
"Recent recovery trend mainly lies in (better performance of) exporters...helped by a rebound in our major trade partners including China," the KDI said in its twice-yearly economic report.
The domestic economy grew 2.9% in the third quarter from three months earlier after increasing 2.6% in the second.
The KDI's latest forecast follows the Organization for Economic Cooperation and Development's upgrade earlier this week of its GDP forecast for the nation to 4.4% growth next year from 3.5% expansion and to 0.1% rise this year versus 2.2% contraction.
An improvement in domestic demand, following a rebound in the local currency versus major currencies and asset prices, and a greater and faster ripple effect of the authorities' fiscal and monetary expansionary policies also contributed to the broad economic performance, the think tank said.
The KDI also joined the increasing voice in calling the authorities to gradually scrap their loose monetary and fiscal policies as the ongoing recovery is expected to invite faster inflation and potential bubble in asset prices in the coming months and also to help bring the budget back into balance.
Global trade conditions and domestic demand are expected to continue to improve into next year, leading to larger demand and further improvement in production and the job market, it said.
"The government should steadily exit from the temporary policies so as not to hurt the fiscal soundness amid a sharp rise in public debt...(while) the (Bank of Korea) should gradually normalize the key policy rate (from the record-low 2.00% now)."
The monetary authorities should remind themselves of that it takes some time for any rate change to show a visible effect, it added.
With regard to the government's recent measures to restrict short-term offshore borrowing, KDI said the government should take "indirect" measures instead.
"An indirect measure to lead to restructuring of overall foreign currency demand should come first," rather than a direct step to affect the form of offshore borrowing, it added.
KDI's latest forecasts are based on the assumptions that the global economy will rise 3% next year, import unit price of oil will average $80 a barrel in 2010 versus estimated $60 a barrel this year and the won will continue to appreciate versus the dollar, albeit at a slower pace.
Korea Development Institute Revised Econ Outlook Table Of Data
2009 2010
Full-year percentage change on year
GDP +0.2 +5.5
CPI +2.8 +2.7
(core inflation) +3.5 +2.4
Private Consumption +0.4 +4.9
Capital Investment -9.8 +17.1
Current Account Balance +$41.5B +$16.2B
-Goods Account +$53.3B +$33.4B
-(Exports) -13.8 +13.7
-(Imports) -25.1 +22.2
Unemployment Rate 3.7 3.4
(as percentage of Total, seasonally adjusted)
Note: All figures for 2009 and 2010 are KDI forecasts.
-By Kanga Kong, Dow Jones Newswires; 822-2198-2230; kanga.kong@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=Xe%2Fsjdo6uTceR2BNpA5ArA%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
November 21, 2009 22:15 ET (03:15 GMT)
Copyright (c) 2009 Dow Jones & Company, Inc.
Korea Development Institute raised its growth forecast for gross domestic product in 2010 to 5.5% from 3.7% previously. It also revised up its forecast for this year to 0.2% expansion from its earlier forecast made in May for 2.3% contraction.
"Recent recovery trend mainly lies in (better performance of) exporters...helped by a rebound in our major trade partners including China," the KDI said in its twice-yearly economic report.
The domestic economy grew 2.9% in the third quarter from three months earlier after increasing 2.6% in the second.
The KDI's latest forecast follows the Organization for Economic Cooperation and Development's upgrade earlier this week of its GDP forecast for the nation to 4.4% growth next year from 3.5% expansion and to 0.1% rise this year versus 2.2% contraction.
An improvement in domestic demand, following a rebound in the local currency versus major currencies and asset prices, and a greater and faster ripple effect of the authorities' fiscal and monetary expansionary policies also contributed to the broad economic performance, the think tank said.
The KDI also joined the increasing voice in calling the authorities to gradually scrap their loose monetary and fiscal policies as the ongoing recovery is expected to invite faster inflation and potential bubble in asset prices in the coming months and also to help bring the budget back into balance.
Global trade conditions and domestic demand are expected to continue to improve into next year, leading to larger demand and further improvement in production and the job market, it said.
"The government should steadily exit from the temporary policies so as not to hurt the fiscal soundness amid a sharp rise in public debt...(while) the (Bank of Korea) should gradually normalize the key policy rate (from the record-low 2.00% now)."
The monetary authorities should remind themselves of that it takes some time for any rate change to show a visible effect, it added.
With regard to the government's recent measures to restrict short-term offshore borrowing, KDI said the government should take "indirect" measures instead.
"An indirect measure to lead to restructuring of overall foreign currency demand should come first," rather than a direct step to affect the form of offshore borrowing, it added.
KDI's latest forecasts are based on the assumptions that the global economy will rise 3% next year, import unit price of oil will average $80 a barrel in 2010 versus estimated $60 a barrel this year and the won will continue to appreciate versus the dollar, albeit at a slower pace.
Korea Development Institute Revised Econ Outlook Table Of Data
2009 2010
Full-year percentage change on year
GDP +0.2 +5.5
CPI +2.8 +2.7
(core inflation) +3.5 +2.4
Private Consumption +0.4 +4.9
Capital Investment -9.8 +17.1
Current Account Balance +$41.5B +$16.2B
-Goods Account +$53.3B +$33.4B
-(Exports) -13.8 +13.7
-(Imports) -25.1 +22.2
Unemployment Rate 3.7 3.4
(as percentage of Total, seasonally adjusted)
Note: All figures for 2009 and 2010 are KDI forecasts.
-By Kanga Kong, Dow Jones Newswires; 822-2198-2230; kanga.kong@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=Xe%2Fsjdo6uTceR2BNpA5ArA%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
November 21, 2009 22:15 ET (03:15 GMT)
Copyright (c) 2009 Dow Jones & Company, Inc.
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