The Bank of Korea, “6.5% Increase in Korea Economy”

The Bank of Korea forecasted that the economic growth for this year would reach to 6.5% increased over the original growth estimates as the business upturn has been extended in the second half of the year. On the other hands, Korea Economic Research Institute (KERI) of The Federation of Korean Industries expected “the annual growth rate would be limited to 5.9% since the rate of economic growth has slowed in the second half of the year”.

Monetary Board determined to freeze the call rate of July at the current level (4.25% per annum).

“Korea economy increased by 6.1% in the first half of the year and will grow by 6.8% in the second half of the year. In the second half of the year, instead of consumption and construction, exports and facility investment will lead the economic growth and so it will take to full-scale recovery” Park Seung, governor of The Bank of Korea forecasted on July 4

Last December, Bank of Korea forecasted that the growth rate of the year would be 3.9%, but it changed the growth rate to 5.7% in April. Then, it adjusted the economic estimates upward again.

In terms of the call rate freeze, Mr. Park said “We could increase the call rate according to the recovery of the object economy, However, as the financial has been unstable decreasing the interest of stock price and the exchange due to uneasy economy of US”.

He examined that the uncertainty of US economy will not affect the Korea economy because the uneasy US economy will be temporary and not serious.

The Bank of Korea forecasted “Consumer Price Index would increase by 3.3% owing to increase of public utility charges and business recovery in the second half of the year. In terms of Current Account, the black-ink balance will be only to USD 1.5 billion below the half of one of the first half of the year (USD 3.5 billion) due to increasing payment of foreign traveling expenses and technical service costs.

According to the report of ‘economic prospect and policy assignment’, Korea Economic Research Institute predicted that the growth rate which was 6% in the first half of the year will increase to 6.1% in the third quarter (July ~ September) and will decrease to 5.8% in the fourth quarter (October ~ December).

Korea Economic Research Institute explained that the domestic demand of consumption and construction investment will be possible to slow, but the real recovery of exports and facility investment can hardly be optimistic. The expansion of five-days working could lead the slowdown of the short-term production activities and so it will be a burden on the economic recovery speed.

Sang-Chul Kim Chi-Young Shin sckim007@donga.com higgledy@donga.com