The South Korean economy was expected to grow 3.4 % in 2012 as a fall in export growth was expected to offset a modest growth of domestic demand, a local think tank said Sunday.
According to the Korea Institute of Finance (KIF), the country' s gross domestic product (GDP) was forecast to expand 3.4 percent in 2012 from a year earlier, down from its previous estimate of 3. 7%.
The Bank of Korea (BOK), South Korea's central bank, lowered its economic growth outlook for 2012 to 3.5% from an earlier estimate of 3.7% in mid-April due to expectations for slower export growth amid the lingering uncertainties in the euro area.
The KIF said that Asia's No. 4 economy showed weaker performance than expected during the fourth quarter of last year due to fragile domestic demand and weak exports stemming from worsening external conditions.
The institute noted that concerns eased over the possible double dip in the U.S. economy, deepening of Europe's fiscal crisis and hard landing in the Chinese economy, but the think tank said that risk factors remained such as higher oil prices and the possible downturn in emerging economies.
On the international front, there remained risks such as the slower economic recovery in the United States, the possible bailout for Spain and weakening austerity plans in France and Greece, while on the domestic front, risks lingered such as acceleration of consumer price inflation caused by high oil prices, a hike in public service charges, excessive household debts and wealth bi-polarization.
The KIF cautioned that the fiscal support room may reduce in the second half after the completion of the front-loading of the 2012 budget plan in the first half, saying that the BOK may be difficult to move the policy rate due to conflicting factors such as external uncertainties, excessive household debts and possible higher headline inflation.
By items, private consumption was forecast to grow 2.5% in 2012 from the previous year, slightly down from an earlier estimate of 2.7% growth, according to the KIF. The outlook for construction investment growth was unchanged at 2.4%, with the reading for facility investment growth placed at 6.2%.
Exports, which account for around half of the South Korean economy, were projected to expand 5.0% in 2012 from a year before, sharply down from a 9.9% growth forecast 7 months before. The outlook for import growth was cut to 4.3% from 9.1%.
The outlook for the 2012 consumer price inflation was lowered to 2.9% from 3.1% due to slower economic growth and policy effect, but the KIF maintained its cautious stance over the possible acceleration of inflation due to concerns over high oil prices and the expected hike in public service charges./.