BOK trims Korea’s 2012 growth to 3.5%

The Bank of Korea slashed its 2012 economic growth outlook on Monday, citing the slower growth of the global economy and high oil prices that threaten Asia’s fourth-largest economy.

BOK revised the growth projection to 3.5 percent for the whole year, down from 3.7 percent it forecast in December. The growth rate will be 3 percent in the first half before firming up to 3.9 percent in the second half, according to the BOK. Korea’s gross domestic product expanded 3.6 percent last year.

The central bank said uncertainties surrounding the eurozone debt woes have softened but Korea’s growth rate has been affected negatively as the global economy in general is expected to grow at a slower pace and oil prices continue to rise.

“When it comes to the upside and downside risks to the growth path, the downside factors predominates, including the eurozone sovereign debt crisis and higher oil prices resulting from geopolitical risks,” the central bank said.

The bank, however, lowered the inflation projection to 3.2 percent, down 0.1 percentage point, reflecting the government’s plans to expand child-care benefits and free school meals, which should substitute some potential private spending. Core inflation, which excludes volatile energy and food costs, is now forecast at 2.6 percent this year, down from an earlier projection of 3.3 percent.

“Korean households’ real purchasing power is expected to strengthen partly due to the improvement in wages and jobs conditions, but domestic spending will be also limited by the accumulated debt and higher costs linked to oil prices,” said Shin Woon, director-general of the research department at the BOK.

The central bank said that private consumption would expand 2.8 percent, down from an earlier estimate of 3.2 percent.

Facility investment would rise to 6.2 percent, helped largely by the bullish outlook for the country’s IT sector. The previous projection was 4.2 percent.

The central bank also said the country would add 350,000 jobs this year, more than the 280,000 jobs it predicted in December.

Analysts said the central bank’s new economic outlook raises the expectation that its policy focus will be on supporting growth rather than taming inflation, as Korea has to deal with external risks first due to its heavy dependence on exports.

Exports are now forecast to grow 4.8 percent this year, down from a forecast of 5 percent in December.

On Friday, the BOK kept the benchmark rate unchanged at 3.25 percent for a tenth month.

By Yang Sung-jin (insight@heraldcorp.com)