News Room - Business/Economics

Posted on 17 Dec 2007

Korean economy to expand 4.7% in 2008: central bank

Korea’s economy is expected to grow 4.7 percent in 2008 from this year on solid exports and private spending, but lofty oil prices and the subprime mortgage rout threaten to dampen the growth, the central bank said Wednesday (Dec.5).

According to the Bank of Korea, the annual gross domestic product (GDP) growth for next year is a marginal slowdown from an estimated 4.8 percent rise for this year.

GDP is the total value of goods and services produced within the economy in a given period. It serves as the broadest measure of an economy’s performance.     

"The fallout from the subprime mortgage crisis will likely keep spreading throughout next year amid a slowdown in the U.S. economy," said Kim Jae-chun, a director at the bank’s research bureau. "Oil price hikes are also expected to continue next year."

Kim added that despite a slight decline, exports will continue their double-digit growth, with private spending staying sound.

The economy will likely expand 4.9 percent on-year in the first half of 2008 but grow only 4.4 percent in the second half amid high oil prices.

The price of Dubai crude oil, Korea’s benchmark, surged 57.5 percent this year to hit a record-high $90.10 a barrel as of November 26.

According to the central bank, private spending, one of the main growth engines of the Korean economy, will advance 4.3 percent next year from this year after increasing 4.4 percent this year on rising jobs and durable goods consumption.

Exports, which make up nearly 40 percent of the economy, will increase 10.3 percent annually in 2008 after growing 11.3 percent this year amid a slowdown in the U.S. economy.

Facility investments will slow to a 6.4 percent gain next year from this year’s estimated 7.6 percent rise on rising uncertainties at home and abroad. Construction investments will improve to 2.8 percent growth next year from an estimated 1.8 percent rise this year thanks to national development projects.

The country’s current account is expected to swing to the red next year as growing imports, mainly on soaring oil prices, will likely offset gains from solid exports while the shortfall in service account widens.

The current account deficit will reach an estimated $3 billion next year, a turnaround from an estimated $6.5 billion surplus this year. The central bank had initially expected this year’s current account surplus to come to $2 billion.

Meanwhile, consumer prices will likely grow 3.3 percent annually next year, up from an estimated 2.5 percent rise this year on lofty oil prices. Inflation will likely reach 3.5 percent in the first half and 3.1 percent in the second half of 2008.

The core consumer inflation, excluding volatile agricultural and oil prices, is forecast to increase 2.9 percent next year from this year’s estimate of 2.4 percent.

The annual unemployment rate is expected to marginally fall to 3.2 percent next year from 3.3 percent this year, the central bank said.