Korea`s 3Q Economic Growth Forecast Below 2.7 %

“Korea`s economic growth for the third quarter of this year is likely to be lower than BOK`s previously forecast, but the nation`s economy will take a U-turn in recovery from the fourth quarter of this year”, forecast Park, Seung, Governor of the Bank of Korea (BOK) yesterday.

His remarks came out during the press conference, held after the Monetary Policy Committee decided to freeze the call rate at the current 3.75% per annum.

“Currently, the domestic economy has yet to enter its recovery phase, and from a wider perspective, it is edging along at the bottom since the second quarter of this year”, said Governor Park, adding, “Consequently, the third-quarter economic growth is more likely to be lower than the previously expected 2.7%.”

“Nevertheless, there are signs of economic recovery in many countries including the U.S. and Japan. Korea, as well, is expected to see the economic recovery in the fourth quarter of this year with pressing problems, such as labor disputes and credit card debts improving”, he added. “In this context, we decided to sustain the call rate at current level.”

Regarding the economic implications of the call rate cuts twice before, the BOK head replied, “Should the rates were not slashed, the economy would be in worse shape by now.” Governor Park explained, “The BOK`s interest rate policy is not as influential as before since the recent economic downturn is mostly attributable to political and social factors, such as the labor disputes, and the North` nuclear issues.”

As of the skyrocketing realty prices in Gangnam, Seoul, Park noted, “Some believe a higher interest rate is necessary to curb the rising prices of housing. But the interest rate manipulation as a means to stabilize realty markets is not appropriate and at the same time this strategy can cause the nation enormous costs after all”, pointing out, “Therefore, non-economic countermeasures, in particular, in the form of social reforms, will be more desirable.”

He added to say, “If SAT scores and high school records are reflected equally in college admission exams, turbulent housing price problems in Gangnam will be immediately addressed.”

In the meantime, according to the Korea Center for International Finance (KCIF), the U.S. Institute of international Finance (IIF), an international group of institutional investors, forecast in its recent report that Korea would grow 2% this year, and 5% in 2004.

The IIF reported, “Despite the Korean government`s economic stimulus packages, tt would take about six months for the nation`s private consumption to recover because of the aftereffects of bubbled credit debts along with dampened customer confidence.”

Joong-Hyun Park sanjuck@donga.com