BOK cuts 2012 growth outlook to 3 percent

South Korea's central bank on Friday sharply cut its 2012 economic growth outlook to 3 percent as exports are feared to lose steam amid the protracted eurozone debt crisis.

The downward revision by the Bank of Korea (BOK) is compared with its earlier estimate of 3.5 percent made in April. In the second half, Asia's fourth-largest economy is expected to grow 3.2 percent, picking up from a 2.7 percent expansion in the first half, according to the central bank.

The revised number marked the slowest expansion since a 0.3 percent rise tallied in 2009. The BOK's 2013 growth estimate was also lowered to 3.8 percent from 4.2 percent.

The downgrade was widely expected as the BOK unexpectedly slashed the key interest rate by a quarter percentage point to 3 percent on Thursday to shield the economy from impacts of the protracted eurozone debt crisis.

"Downside risks are deemed to be predominant mainly because of the prolonged eurozone debt crisis and economic slowdowns in emerging countries," the BOK said in a statement.

In the second quarter, the Korean economy is estimated to have sharply cooled down from a 0.9 percent expansion in the first quarter. The quarterly growth is expected to reach around 1 percent in the third and fourth quarter, according to the BOK.

Citing falls in oil prices, the central bank also lowered its 2012 inflation projection to 2.7 percent from its previous estimate of 3.2 percent. The BOK aims to keep its median inflation target at 3 percent for 2010-2012.

The BOK's growth outlook is gloomier than the government's forecast of 3.3 percent, indicating that the July rate cut underscored its urgency to support the weakening growth. The government's inflation forecast stands at 2.8 percent for this year.

The global economic outlook is getting bleaker, dogged by the eurozone debt problems, and global central banks, including those in the eurozone and China, are scrambling to ease monetary policies.

BOK Gov. Kim Choong-soo presented a gloomier outlook on Thursday, saying that the local economy's actual growth is likely to underperform its potential for a considerable period of time.

He added that consumer inflation is expected to run below the BOK's median inflation target for the time being.

According to the BOK, exports, which account for about 50 percent of the Korean economy, are forecast to expand 4.4 percent this year, down from a previous estimate of 4.8 percent. Private spending will likely grow 2.2 percent, compared with an earlier 2.8 percent growth projection.

Construction investment is expected to gain 1.6 percent this year, slowing from a 2.8 percent estimate made in April. Facility investment is likely to advance 5.8 percent, lower than a previous forecast of 6.2 percent.

Analysts said that slowing momentum of the economic growth and easing inflation may provide the BOK room to cut the key rate further within this year.

Meanwhile, the BOK revised up its forecast for job growth for this year, saying that the number of employed people will likely grow by 380,000, larger than an earlier estimate of 350,000.

The central bank also raised its 2012 forecast of the current account surplus to US$20 billion from its previous estimate of $14.5 billion as falling oil prices and the won's weakness will help widen the trade surplus and likely improve service accounts. (Yonhap News)