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Korea’s growth on rocky road

Sept. 4, 2011 - 19:22 By
Foreign investment banks revise down country’s economic growth projections

Foreign investment banks have revised down their economic growth predictions for South Korea, reflecting worsening external factors such as continuing U.S. and European debt woes that could damage the country’s export-driven economy.

Nine foreign investment banks including UBS projected that Asia’s fourth-largest economy would likely grow 4.0 percent this year, down from their earlier average forecast of 4.2 percent.

Korea’s revised growth rate of 4.0 percent is the lowest among the 10 Asian countries, except for Thailand (3.9 percent). Leading the pack is China, whose 2011 economic growth rate is estimated to reach 9.1 percent, while Hong Kong (5.6 percent), Indonesia (6.4 percent) and Taiwan (4.9 percent) are also expected to pull off stronger growth than Korea’s.

Morgan Stanley said in a report issued on Aug. 26 that Korea’s economy would rise 3.8 percent this year, a figure revised down from 4.5 percent.

UBS also turned pessimistic, saying that the growth rate for the Korean economy would be 3.3 percent, down half a percentage point from its earlier projection. UBS noted that Korea and Taiwan are the most vulnerable markets to external shocks.

Citibank revised down the forecast from 4.3 percent to 3.7 percent while Goldman Sachs slightly lowered the figure from 4.3 percent to 4.2 percent.

A troubling trend is that foreign investment banks have been projecting higher consumer prices for Korea while lowering the outlook for the economic growth. Their average forecast of consumer prices this year has been raised from 4.0 percent to 4.2 percent.

Consumer prices surged 4.7 percent in July from a year earlier, staying above the government’s target inflation range of 4 percent for seven months in a row, according to Statistics Korea. Core inflation, which excludes volatile food and energy prices, also rose 3.8 percent from a year earlier, hitting a 26-month high.

By Yang Sung-jin (