KDI predicts economic growth rate to fall to 4.3% this year

The Korea Development Institute (KDI) predicted Thursday that Korea`s economic growth rate would fall to 4.3 percent this year, 0.8 of a percentage point down from the 5.1 percent forecast at the end of last year. Particularly, the state-run think tank said that the rate could dip as low as 3 percent if the U.S. economy worsened further. In an economic outlook report, the KDI revised its forecasts for major economic indexes this year, saying that the growth rate of exports would slow down and that it would be difficult for the stagnant domestic consumer market to recover soon. The KDI said that the inflation rate would hit 4.3 percent this year, up from the government target of around 3 percent, and the unemployment rate would be more than 4 percent, higher than the government forecast of 3 percent.

Private consumption growth was expected to remain at only 3 percent owing to the ongoing economic slump and the won`s depreciation. The export growth rate was forecast to slow down to 6.6 percent this year from last year`s 21.6 percent, while import growth would decline to 4.4 percent from 20 percent, causing the total trading volume to shrink. On the other hand, the current account surplus was expected to expand by $2.4 billion over last year to $13.4 billion this year because import growth would slow more rapidly than export growth.

The KDI report advised the government to solve the problems of insolvent large companies such as Hyundai and Daewoo affiliates as soon as possible in order to restore the confidence of domestic and foreign investors in the Korean economy. Otherwise, the concerns of financial markets could deepen next year owing to non-economic factors such as the presidential election, it warned.

Kwon Soon-Hwal shkwon@donga.com