Lower GDP Growth

The central bank projects 4.4 pct growth for this year

Korea's economic growth this year is likely to reach 4.4 percent, lower than 5 percent for last year with the second half growth greater than the first half spurred by exports, the Bank of Korea said in a report on 2007 GDP projection.
The central bank said the first-half growth is likely to hit around 4 percent, while that for the second half is likely to hit 4.7 percent.
The report said private consumption in the first half of this year would be around 3.7 percent much lower than 4.4 percent during the same period last year. It will escalate to 4.2 percent in the second half for 4 percent for the whole year.
Private consumption is expected to slow to 4 percent lower than 4.2 percent last year due to slowdown in the number of persons employed, the heavy household debt burden and fiscal spending are likely to offset the improvement in terms of trade resulting from international oil price stabilization.
The government consumption is projected to increase 4.5 percent, lower than 5.3 percent last year.Investments in construction would dip 1.2 percent in the first half, but rebound to 1.8 percent in the second half to record 1.6 percent for the whole year.
Facility investment is projected to increase 6 percent, 5.9 percent in the fist half and 6.2 percent in the second half. Exports are likely to rise 10.8 percent this year and imports of goods 11.1 percent, the central bank said. Facility investment will continue to show improvement centering around machinery investment, boosted by continued pressure for investment and the favorable movements of leading indicators.
Construction investment is anticipated to show the eight weak recovery since the sluggishness of the housing construction market will offset the launch of the BTL projects and the implementation of balanced national development projects.
Year-on-year, construction investment is likely to remain sluggish until the first half of this year and shit to an increase in the second half(2.2 percent year-on-year in the second half of 2006, to -1 percent slide in the 1H of this year and to 1.8 percent increase in the 2H.
Goods exports are forecast to maintain growth of 10.8 percent for this year down from 12.9 percent last year with 3.7 percent growth in the H1 and 3.1 percent jump in the H2 bolstered by the recovery of the IT industry and the quality competitiveness of core products, although the growth rate is expected to decline from last year in line with a global economic slowdown.
The number of persons in employment is expected to increase by 280,000(1.2 percent) this year, a figure less than that of 2006(300,000). In the midst of hazy outlook for corporate profitability due to sudden fluctuations in economic variables that have a major impact on corporate management, including oil prices and foreign exchange rates, companies will maintain a passive stance toward employment, following the passage of legislation to provide non-regular workers with legal protection.
However, the employment situation will get better toward the second half, as the economy is expected to grow faster than in the first half. Unemployment rate is forecast to stand at 3.6 percent, a slight increase from last year of 3.5 percent.
Consumer prices inflation is expected to stand at just 2.6 percent this year, a slight increase from 2.2 percent last year due to such factors as increased in housing rental prices, increases in public utility charges, medical and transportation fees, among others, although oil prices would be stable at around $50 per barrel on average this year. The prices of apartments in Seoul and its vicinity rose sharply last year.
Core inflation is expected to stand at around 2.7 percent pushed by faster growth in service charges including rents.
External Transaction:
The current account surplus is likely to come in at around $2 billion this year, which is negligible. The goods account surplus is forecast to widen to around $30 billion, since exports will sustain their resilient growth while international oil prices are likely to stabilize.
The deficit on the services, income and current transfers account is expected to widen to around $28 billion, owing to an increase in overseas travel expenditure.
In summary, the economic growth is forecast to maintain growth at the level of its potential growth this year, although there are downside risk factors at work including a possible hard-landing of the U.S. economy, rebound of global oil prices and worsening of the North Korean nuclear issue. nw

Gov. Lee Seong-tae of the Bank of Korea