The Bank of Korea made an upward adjustment of this year’s economic growth forecast on April 10, from 3.8 percent to 4.0 percent.
The Central Bank also viewed next year’s growth rate to be 4.2 percent. However, the bank explained that the upward modification this time is the result of the change in statistical criteria rather than an actual upswing in the local economy.
The bank modified the economic growth rate forecasts for this year and the next through the modified economic outlook announced on April 10.
The actual growth rate is pretty much unchanged vis a vis the growth forecast of the year’s beginning, because the difference stemmed from the new international standard, introduced at the end of last month, that allows categorizing intangible intellectual products such as R&D, entertainment, and literature as assets.
Shin Woon, General Director of the research department in Korea’s Central Bank, said, “GDP growth is expected to mark 4.0 percent sometime this year, on the back of a double boost in exports and domestic demand. Exports are gaining momentum as the global economy is getting out of the recession, while domestic demand will have a sustainable recovery amid improved sentiments on consumer income and corporate investment.”
In fact, the bank has a rosy prospect on domestic demand recovery by assessing this year’s domestic demand contributing to the net growth to be 0.1 percent higher than exports.
The director explains the optimism by saying, “R&D being included in the GDP statistics also had an effect. Ever since the financial crisis, the export ratio always has been higher.”
The Consumer Price Index forecast was set at 2.1 percent, 0.2 percent down from the beginning of the year’s forecast, reflecting a prolonged weakening of agricultural product prices upon the favorable weather and college tuition freeze.
The current account balance surplus rose from US$55 billion to US$68 billion. Shin puts, “The surplus expanded because under the reformed international account criteria, the appropriation method of processing trade has changed, which led to additional appropriation of re-investment profits.”
By saying “Upward risks and downward risks are balancing. The former includes the stagnant growth of emerging economies like China and weakening of the yen, while the prime example of the latter is advanced economies such as the US and EU’s recovery gaining speed,” he gave a neutral analysis as to the next path of Korea’s economy. The same goes for the Consumer Price Index, because there are mixed factors such as bad weather driven price spikes in farm products and a raw material price drop due to the stalled recovery of the global economy.