BOK cuts 2012 growth forecast to 3.7 percent

The Bank of Korea on Friday dimmed the country’s growth forecast for next year to 3.7 percent, down from its earlier estimate of 4.6 percent, citing uncertainty from Europe’s debt situation as lingering risks for the export-reliant economy.

The downward revision narrowed gaps in the mid- to-high 3 percent range at private think tanks, in a sign that Asia’s fourth largest economy will grow at a slower pace than this year under sluggish global trade sentiment and weak domestic demand.

The central bank forecast the gross domestic product to expand 3.8 percent this year and 4.2 percent in 2013. It predicts consumer prices to grow 4 percent this year and 3.3 percent next year. 

“The downward revision came as export growth will likely slow amid the worsening of the eurozone debt problems and consumer and investment confidence will weaken,” BOK said in a statement.

The gloomy outlook comes a day after the BOK left its borrowing rate unchanged at 3.25 percent for a sixth month, Thursday.

The central bank said consumer spending weakened in the third quarter as more households were under tight budgets from their debt and as they prepare for worsening business conditions under high inflation. It said growth momentum will quicken in the second half of next year after posting at least 0.7 percent of on-quarter expansion in the first quarter. It predicted exports, making up roughly half of the economy, to expand 5 percent next year, down from an estimated 11.6 percent growth for this year.

Think tanks and brokerages have been slashing their growth outlook for next year over the past month on deepening Eurozone crisis and slowing business activity. The Korea Development Institute in November scaled down its outlook to 3.8 percent from 4.3 percent. Moody’s Investors Service cut their projection to 3.5-4.0 percent earlier, down from its earlier estimate of 4.5 percent.

Samsung and LG economic research institutes predicted 3.6 percent growth for next year. Views were grimmer at foreign investment banks. Goldman Sachs on Wednesday made their latest forecast at 3.5 percent for next year, cutting it down from 3.7 percent made earlier. Swiss banking giant UBS stayed bleak with a 2.8 percent growth outlook for Korea next year and Nomura Securities gave a 3 percent for next year.

“There are many factors at work, and it’s true that people get confuse with the current situation, but there won’t be a repeat of the 2008 turmoil,” said Kwon Goo-hoon, chief economist at Goldman Sachs, at a press briefing in Seoul.

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