Think Tank Raises 2010 Growth Forecast to 5.5 Pct.

The country’s leading state-run think tank yesterday raised its growth forecast for the Korean economy next year to 5.5 percent, up from 4.2 percent predicted in September.

The Korea Development Institute’s projection is the highest among those by major institutes in and out of the nation, and strongly hints at a V-shaped recovery.

“The Korean economy has shown faster recovery than expected since the second quarter,” the institute said in a report on the second half this year. It also said the economy will grow 0.2 percent this year, up from its September prediction of minus 1.1 percent.

On the reason for its upward adjustment, the institute said, “As companies wrap up their inventory adjustments, rising demand both at home and abroad has led to a sound increase in production.”

Also next year, private consumption is expected to rise 4.9 percent and exports 13.7 percent from this year. Facility investment will grow 17.1 percent and 200,000 jobs will be created over the same period.

On the potential growth rate, institute director Hyeon Oh-seok said, “Though the base forecast is 4.5 percent, we see that even recovery in the low five-percent range is possible with strong investment.”

He also said chances of a double dip recession are low.

The institute’s projections are largely positive compared to those of other think tanks at home and abroad. Deutsche Bank has given the highest forecast for Korea among foreign investment banks.

The Korea Development Institute is largely considered to give conservative forecasts since it is a government entity, but apparently based its higher forecast on the rapid recovery of the Korean economy, which grew 2.9 percent in the third quarter from the second quarter.

International financial organizations and private institutes are also expected to raise Korea’s growth forecast for next year soon after reflecting growth in the third quarter.

The Organization for Economic Cooperation and Development said Thursday that the Korean economy next year is expected to grow 4.4 percent, the highest among its member nations.

Considering that next year’s growth rate could beat the initial forecast of four percent, the Strategy and Finance Ministry will reflect a revised number in next year’s economic management direction to be announced next month.

peacechaos@donga.com