Economy set for mild recovery, but bumpy road still ahead: BOK

South Korea's economy will post a mild recovery amid a slowdown in inflation but face heightened uncertainties amid geopolitical tensions and higher rates in major economies, the central bank said Monday.

In a report to lawmakers for parliamentary inspection, the Bank of Korea said the economy will post a mild recovery into next year as a slump in exports eases, while private spending remains relatively weak.

In May, the bank cut its growth projection for Asia's fourth-largest economy to 1.4 percent from the 1.6 percent predicted three months earlier.

South Korea's economy grew at a slightly faster pace of 0.6 percent in the second quarter of this year than three months earlier despite a slump in exports. In the first quarter, the economy expanded 0.3 percent following a 0.3 percent contraction.

"The country's current account has been in the black since May, and its surplus will be maintained on the back of a recovery in the IT sector," the central bank said.

The bank said the chipmaking sector, one of the country's backbones, is showing signs of a recovery.

"Adjustments in the sector's inventory levels will end during the first half of next year as demand-supply conditions improve," it said.

The central bank said weak demand-side pressure, along with stabilizing prices of farm goods, will help inflation slow down, but the conflict between Israel and Hamas may reduce the pace of the slowdown in inflation.

Data showed that inflation is moderating, although its pace gathered ground last month due to higher oil prices.

Consumer prices increased 3.7 percent last month from a year earlier, the fastest in five months, driven by higher oil costs and rising prices of some farm goods.

The BOK predicts inflationary pressure to build up down the road, with inflation expected to stay over 3 percent around the end of the year, far higher than its target rate of 2 percent.

For the full year, the central bank expects inflation to be 3.5 percent.

The central bank said Asia's fourth-largest economy is also still faced with enhanced uncertainties, such as the direction of China's economy, the unfolding of tensions in the Middle East and the volatility in the global financial market. (Yonhap)