S. Korea cuts 2011 growth forecast
2011-06-30 12:50:59
South Korea's government Thursday reduced its economic growth forecast for this year amid rising world oil prices, and raised its projection for inflation.
The Ministry of Strategy and Finance now predicts gross domestic product in Asia's fourth largest economy will expand 4.5 per cent compared with its earlier five per cent forecast, citing weaker than expected domestic demand.
"Exports will remain brisk as the global economy continues to recover, but with trade terms deteriorating on higher oil prices, domestic demand is likely to be more sluggish than we initially thought," the ministry said in its twice-yearly economic outlook.
"Recovery in advanced nations slowed slightly and domestic demand also remained slower than expected," Yoon Jong-Won, head of the ministry's economic policy bureau, told reporters.
The ministry raised its inflation forecast to four per cent from three per cent and said price pressures are unlikely to ease markedly before September.
The consumer price index rose 4.1 per cent in May from a year earlier, staying above four percent for the fifth straight month.
Thursday's forecasts bring the ministry closer in line with other market-watchers.
The International Monetary Fund tips 4.5 per cent growth and 4.3 per cent inflation for 2011. The state-run Korea Development Institute predicts 4.2 per cent growth and inflation at 4.1 per cent.
The government said a recovery in the local economy and incomes would probably fuel demand-side inflation, and home rents were set to rise further in the autumn when many people move.
The ministry expects the economy to grow nearly five percent next year as economic conditions at home and abroad are expected to improve further.
Figures for May industrial production released earlier Thursday gave grounds for optimism.
Production increased 8.3 per cent from a year earlier compared with a 6.9 per cent rise in April, Statistics Korea said. The May increase was also better than the 6.7 per cent forecast by economists polled by Dow Jones Newswires.
From a month earlier, output rose 1.7 per cent compared to a revised 1.7 per cent decline in April.
Increases in the semiconductor, parts and machinery equipment sectors fuelled the rise in output, Statistics Korea said in a report.