Bahk hints at growth projection cut

Boom is expected to increase sales of formula firms, diaper and toiletry makers for children.


Finance Minister Bahk Jae-wan on Monday said the government will factor in the 2012 growth projection cut by the state-run Korea Development Institute in revising its economic outlook.

Answering questions about the deteriorating economic conditions and Seoul’s soon-to-be revised growth outlook for next year, Bahk said he respects KDI’s decision in scaling down the expectations as uncertainties stemming from Europe remain a risk.

“I understand that KDI scaled down its growth projection to 3.8 percent, rightfully so as economic momentum slows. There could be more than one way of projecting how the economy will perform and we’ll take that into account,” Bahk told reporters attending a forum co-hosted by the Institute for Global Economics and the Asian Development Bank.

KDI on Sunday scaled down Asia’s fourth-largest economy’s 2012 GDP forecast to 3.8 percent from 4.3 percent. The figure is now 0.7 percent lower than that of the government, 4.5 percent.

The state-run think tank cited tensions from the European debt crisis and the sluggish U.S. economy which translates to less demand for Korean goods.

“Korea’s economy started slowing down from the first quarter this year. Based on the economic cycle, the downturn will continue for a while, at least into H1 next year,” KDI said.

Korea’s September industrial output grew by 6.8 percent from a year earlier, posting the strongest gain since May. But the data also showed decreasing consumer demand and capital investments as European crisis weigh down on business sentiment here.

The Finance Ministry is widely expected to track economists and local think tanks in scaling down the growth projection in its outlook revisions due early December. Bahk on Oct. 17 said it is too early for the government to back away from 2012 growth forecast, saying that it still needs to see how business sentiments will be affected by the debt saga in Europe.

Bahk also stressed that Seoul will not back away from its plans to achieve budget balance in 2013.

“The government’s deficit reduction plans are also related its sovereign debt ratings. We’re on track to get it done,” he told reporters.

The ministry said the 2012 budget plan will cut the government deficit to 1 percent of gross domestic product from the 2 percent expected for this year.

Credit rating agency Standard & Poor’s projected the country to grow 4.3 percent this year and next.

Separately, KB Financial Group chairman Euh Yoon-dae said the central bank should provide more liquidity for local banks to lubricate the market in times of credit crunch.

Speaking at the forum, he argued that the Bank of Korea should consider lending part of its foreign exchange reserves to local banks as the industry is cornered to secure dollars when markets crash.

“Tapping into the FX reserves will help lower local banks’ overseas borrowing costs and serve as a buffer by shielding them from short-term external shocks,” Euh said.

BOK has the world’s seventh-biggest holder of FX reserves amounting to $316 billion as of October.

By Cynthia J. Kim (cynthiak@heraldcorp.com)