S. Korea's economy to grow 4.2 pct in 2011: KDI

SEOUL, Nov. 21 (Yonhap) -- South Korea's economy is expected to grow 4.2 percent
in 2011, down from an estimated 6.2 percent expansion this year, due mainly to a
global economic slowdown, a local think tank said Sunday.
The growth forecast by the state-run Korea Development Institute (KDI) is lower
than the 5 percent target set by the finance ministry and the 4.5 percent
projection made by the central Bank of Korea.
The think tank said in a report that its growth forecast for next year also
reflects an expected increase in crude oil prices and the Korean won's
appreciation against the U.S. dollar, which usually hurts the country's exports,
one of its main growth engines.
"The slower growth number for next year is roughly on par with the country's
growth potential and is a sign that economic conditions are returning to normal,"
the report said.
South Korea was rocked by the collapse of U.S. investment giant Lehman Brothers
in late 2008, which caused growth to edge up just 0.2 percent in 2009 after
logging a disappointing 2.3 percent growth in the previous year.
The report said that despite slower growth, South Korea's economy will become
more balanced as the domestic sector is likely to grow at a brisk pace that can
bolster industrial output and create jobs.
A strong domestic economy, fueled by private consumption and business
investments, has played a role in pushing up growth in recent months and can
permit the country to be less dependent on overseas markets for growth.
In the third quarter, South Korea's gross domestic product rose 4.5 percent
on-year in a preliminary tally with its growth likely to reach around 5.4 percent
for the October-December period.
The think tank said that compared to this year, crude oil prices may rise about
10 percent to an average of US$85 per barrel in 2011, with the won expected to
appreciate at about the same rate as this year.
The Korean currency surged 19.2 percent against the dollar in the first quarter
of this year and rose 9.7 percent and 4.5 percent on-year, respectively, in the
second and third quarters. As of late October, the local currency traded at 1,126
won to the greenback.
A rise in the value of the won can hurt export competitiveness of locally made
products on the global market, with higher oil prices to affect balance of trade
and contribute to inflationary pressure.
According to the report, domestic consumption is expected to expand 4.1 percent
on the strength of improved income earnings and job market conditions with
business and construction-related investments to go up 8.5 percent and 3.4
percent each.
Exports are projected to increase 13.6 percent on-year to $545.7 billion, with
imports likely to rise 17.7 percent to $503.0 billion for a trade surplus of
$42.6 billion.
For this year, exports are expected to surge 28.6 percent, with imports gaining
34.6 percent compared to the year before for a trade surplus of $53.3 billion.
The country's consumer prices are predicted to move up 3.2 percent in 2011 on
solid economic growth, compared with an estimated 2.9 percent increase for the
whole of this year.
The think tank, meanwhile, said there is a need to "normalize" the country's
interest rates to counter inflationary pressure and give more leeway to the
government, which can use rate adjustments as a policy tool in the future.
Seoul should also maintain a market-determined exchange rate policy and guard
against a sudden outflow of capital that can hurt growth, it said.
yonngong@yna.co.kr
(END)

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