IMF cuts 2012 growth estimate for S. Korea to 3 percent

The International Monetary Fund (IMF) cut its 2012 growth estimate for South Korea to 3 percent on Thursday, citing the heightened eurozone crisis as a major risk factor.

In June it forecast Asia's fourth-largest economy would grow 3.25 percent. But the IMF said South Korea's economy is likely to hit the bottom soon and called for preparations for raising interest rates.

 "The Korean economy is slowing in the face of strong global headwinds," the IMF said in a report to sum up the results of its annual consultations with South Korea's economic policymakers.

"It is projected to bottom out during the course of 2012, regaining momentum towards the end of the year, in line with the global recovery," it added.

 The Washington-based agency revised its growth outlook for South Korea from 4 percent to 3.9 percent for 2013.

It described "a further intensification of the euro area crisis and its spillover" as the main short-term risk to the outlook.

The IMF emphasized that Seoul should resume monetary policy normalization next year once signs emerge that its economy is fully rebounding.

In a roundtable with Korean correspondents here, Hoe Ee Khor, assistant director of the Asia and Pacific Department at the IMF, also said, "We feel that the Bank of Korea should normalize the rate."

"We agree that household debt is relatively high by OECD standards," he added, referring to the Paris-based Organization for Economic Co-operation and Development.

He also said the IMF is "in the process of revising our forecast for the global economy and for all countries."

Its forecast for the South Korean economy is relatively optimistic compared to projections offered by other think tanks and experts.

Earlier this week, the state-run Korea Development Institute slashed its prediction for 2012 from 3.6 percent to 2.5 percent.

The government currently expects the economy to grow 3.3 percent but many observers say that the outlook is too optimistic given the latest economic conditions at home and abroad.

Sluggish exports are cited as a main drag on the Korean economy, which depends heavily on trade for its growth, as the prolonged eurozone debt problems and slowing growth in major economies have resulted in less demand for Korean products.

Government data show that the country's overseas shipments fell 6.2 percent on-year in August and their combined value posted a 1.5 percent on-year decline during the first eight months.

The IMF expects Korea's exports to grow 5.6 percent this year, which is quite lower than the 19.3 percent expansion tallied last year.

The country is forecast to post a current account surplus of US$22.5 billion this year and $21 billion for next year. The IMF also expects that consumer prices will grow 2.8 percent this year before rising 3.2 percent in 2013.

The IMF, meanwhile, assessed that the fiscal health of Korea has improved thanks to its increased foreign currency reserves, reduced dependence on borrowing and better foreign currency liquidity in its banking sector. (Yonhap News)