Next Year’s Growth Rate Forecasted at Four Percent

The Bank of Korea (BOK) forecasted next year’s growth rate to be 4.0 percent. The BOK also lowered this year’s growth rate to 4.7 percent from the original forecast of 5.2 percent, and expects that the rate will not meet the government’s goal of 5.0 percent.

The BOK announced its economic forecast for 2005 on Thursday, December 9, and forecast the first half (January - June) of next year’s GDP (gross domestic product) growth rate to be 3.4 percent, and the second half (July - December) 4.4 percent, which are altogether approximately 4.0 percent of the yearly base.

This figure is second to the lowest among next year’s forecasted growth rates announced by major economic forecasting organizations, following after the Samsung Economic Research Institute’s 3.7 percent.

Park Seung, the governor of BOK, said, “The economic situation will not worsen from the current situation, and will slowly recover starting the second half of next year.”

Governor Park emphasized, “What is more important than the growth rate figure is the public welfare. The people are suffering from a growth without employment, and this suffering may continue on for five, maybe 10 years.”

Meanwhile, BOK’s monetary policy committee decided that day to freeze the annual 3.25 percent call rate (the interest rate banks charge each other for overnight loans).

This decision is interpreted to have been made following the judgment that it is uncertain whether the cut in the call rate may boost the economy or not, and that the possibilities for capital outflow into foreign countries is becoming higher.

BOK prospected that next year’s exportation and construction investments will greatly slow down, and domestic spending will recover slowly.

Next year’s export growth rate (based on customs clearance) was forecasted at 7.3 percent, far lower than this year’s 31.2 percent, and domestic spending, which takes up more than half of the GDP, is expected to stay at a steady 1.8 percent increase rate.

The current account surplus is forecasted to decrease from this year’s 27.5 billion dollars to 16 billion for next year due to a slowdown in exports.

Kang-Woon Lee kwoon90@donga.com