Continuous Adjustment of Economic Projections Due to Iraq War

Major business indicators are projected to be further worsened, in view of the fact that the Bank of Korea started work to lower an estimated rate of economic growth to 4% from 5%. In addition to the substantial contraction of domestic consumption and investment than expected, the unstable situation such as rising prices of oil and gold in the international market has been continuing because the Iraq War is shown to be lasting longer. Mr. Park Chul, Deputy Governor of the Bank of Korea, commented today that it is inevitable to adjust the projection of major indicators for this year to a lower level because of the deterioration of external conditions together with aggravated performance of industrial production during January and February. He made it clear that the revised projection will be released in the middle of next month under the assumption of an early settlement of that war.

Further, he said that the scenario of a long term Iraq War is not considered at this stage. And if the situation goes to that direction, the estimate must be made totally on a zero basis.

Under the assumption of an early ending to the Iraq War, BOK internally made out the worsened indicators. Growth rate of GDP will reach the 4% level from the original 5.7%, with current accounts showing a small scale deficit from surplus of 2-3 billion dollars and inflation rate of consumer goods will reach the 4% level from 3.4%.

According to Economic Prospects for 2003 announced in December of last year, external factors were set up as follows: △estimated growth rate of 2.8% for USA △oil price of international market at $25 per barrel △exchange rate of 1 dollar to 1200 won.

On the contrary, actual indicators are shown as: △estimated growth rate of 2.5% for USA △exchange rate of 1250 won △30 dollars per barrel of oil.

If the Iraq War goes longer than expected, BOK estimates that more than $6 billion of additional deficits will take place due to high oil prices exceeding $30 per barrel. In this case, the economic projection will have to be revised again. The economic research institute, in domestic and foreign business as well, already adjusted the economic growth rate for Korea to a lower level.

Samsung Economic Research Institute estimates that the recent growth rate is below 3%, current account deficits is $1.5 billion, and inflation rate is in the upper 4% level respectively, in case of a long term Iraq War.

The Korea Economic Institute also forecasts a growth rate of 1.4%, current account deficits of $2190 million, if the Iraq War drags longer.

For reference, on the 28th at the New York Mercantile Exchange, gold prices for April delivery closed at 331.5 dollars per oz., rising 3.10 dollars from the previous day, which capped out at 332.50 dollars for the day.

Kwu-Jin Lim mhjh22@donga.com