Chances high for Korean economy to make hard landing: BOK

The growth rate of the Korean economy will slow drastically next year and consumer prices will rise, the Bank of Korea (BOK) predicted Friday.

With incomes shrinking, unemployment rising and a number of indices pointing to a grim economic outlook, concerns are growing that the economy will make a hard landing.

In its economic outlook for 2001, the Bank of Korea forecast that gross domestic product (GDP) would grow only 5.3 percent next year, down four percentage points from this year.

The unemployment rate is expected to climb to 4.3 percent and the trade surplus to shrink to US$4.5 billion, less than half this year`s US$10 billion. On the other hand, the inflation rate was predicted to increase to 3.7 percent from 2.3 percent.

The BOK¡¯s director of research said that the GDP growth rate would fall to 5.3 percent next year as exports, facility investments and consumption will all decline sharply. He said that the projection is based on the assumption that the growth rate of the U.S. economy does not fall dramatically, that international oil prices will gradually fall beginning in the second quarter of next year and the ongoing corporate and financial restructuring will make progress. If even one of these preconditions turns out to be worse than expected, the GDP growth rate will plunge even further, he said.

Contributing to fears of a hard landing are the fact that the nation`s growth rate, which reached 9.2 percent in the third quarter of this year, dipped to 6.5 percent in the fourth quarter.

But the BOK¡¯s director said the situation is not so bad because the estimated growth rate is not below the potential growth rate of 5 to 6 percent.

Meanwhile, private consumption in 2001 was expected to increase only 4.1 percent, down from this year`s 7.3 percent, due to unstable employment and slower increases in real incomes stemming from restructuring. Facility investments also will grow only 2.8 percent under the influence of slowed exports, consumption and corporate restructuring.

But the bank predicted that investments in the construction sector would recover from this year`s growth rate of minus 3.4 percent to 3.5 percent.

The export growth rate is expected to hit 11.9 percent, about half of this year`s 23.1 percent, due to a drop off in the growth of international trading volume and the economic downturn of major export markets such as the United States.