2001 economic growth forecast at 5.4%

It is forecast that the Korean economy will somewhat deteriorate next year. The growth rate will slow down substantially, whereas consumer prices will rise.

The Korea Development Institute has released its ¡°Korea's economic outlook for 2000-2001," in which it anticipated that the nation's economy would grow 5.4% next year on condition that a swift restructuring will be carried out during 2001. It is compared with this year's projected growth rate of 8.9%.

The government think tank said that this year's economic growth rate would stand at around 9% thanks to brisk exports, although domestic business activities remain sluggish. But it is pessimistic about next year.

The KDI forecast a 5.4% growth rate next year if restructuring is carried forward promptly. Soaring oil prices and increase in public utility bills will be reflected in next year's economy as will a temporary shock from the restructuring efforts. If the restructuring is not working well, however, the growth rate might slow down further, the institute warned.

Consumption is projected to freeze next year. Customers' purchasing power will be weakened substantially, and consumption might increase 5% during the second half of this year and 4.5% in 2001. With a worsening trading environment, GNI growth rate will be lower than the GDP growth rate, and the real economic activities will further deteriorate, according to the KDI.

The forecast also anticipated that inflation would stay at 2.5% this year and would increase to 3.7% next year due largely to soaring oil prices. The nation's current account surplus might shrink from this year's projected US$11.2 billion to US$6.8 billion in 2001, while facilities investment might increase by a meager 6.9% next year compared with this year's 38%.

The KDI noted that Korea might be able to cope with the changes if restructuring is carried forward in a steadfast manner, although the nation's economy is expected to suffer difficulties with internal and external shocks.

Kim Joon-Il, head of KDI's macroeconomic team, said that it is vital to liquidate insolvent companies in line with restructuring in employment and investment sectors, beyond financial restructuring focused on removing bad debts, in order to gain substantial results from corporate restructuring. In particular, it is urgent to give top priority to the abrupt liquidation of insolvent companies that are unlikely to survive to restore confidence in restructuring, he pointed out.

Choi Young-Hae moneychoi@donga.com