South Korea forecast on Monday that economic growth would slow by about half a percentage point next year and that the outlook for key exports was weak in the second half of this year.
Finance Minister Kwon O-kyu told a group of business executives that gross domestic product growth would probably fall to around 4.5 percent in 2007. The ministry's growth target for this year is 5.1 percent.
The commerce ministry said later that the prospect for exports of such items as chips, display panels and home appliances remained weak in the second half of this year.
Economists said Kwon's forecast, the ministry's most specific for next year, reinforced the widespread view in financial markets that the central bank would not raise interest rates any higher.
"It is noticeable that the government officially mentioned a rate falling below 5 percent for the first time," said Oh Suk-tae, an economist at Citigroup. "That means the central bank will eventually start thinking about cutting interest rates."
The Bank of Korea raised rates five times between last October and August this year to rein in inflation, confident that the economy was solid enough to support the tightening, but its governor suggested a change in its policy stance this month.
Bond prices rose slightly after Kwon's remarks before finishing the day unchanged amid caution ahead of economic indicators due out this week, including July industrial output and August foreign trade and inflation data.
The commerce ministry said display panel exports would suffer a sharp slowdown in annual growth to 17.3 percent in the July-December period from 31.4 percent in the first half.
Growth in auto and chip exports would accelerate only slightly, while exports of mobile phones and other telecommunication devices would decline from a year earlier, it said in a statement, based on a broad survey of industries.
South Korea is home to some of the world's top suppliers of these products, including Samsung Electronics Co Ltd, LG.Philips LCD Co, LG Electronics Inc and Hyundai Motor Co.
"The IT sector doesn't look good, as Korean companies as well as US rivals are faced with a high inventory problem," said Ryu Seung-sun, an economist at Mirae Asset Securities. Information technology goods account for about one-third of South Korea's total exports, much of which end up in the United States, either directly or through companies in China.
Separate data from the central bank showed credit demand from South Korean consumers remained strong despite a rise in local interest rates, indicating private consumption was maintaining its momentum. But both Ryu and Oh said loan growth alone did not guarantee growth in consumption, unless accompanied by sustained growth in household income.
The Bank of Korea data showed outstanding loans that South Korean households owed to financial institutions at the end of June was 10.2 percent higher than a year earlier, slowing from a 10.5 percent annual rise at the end of March.
The outstanding amount of goods and services that households had purchased on credit was 13.9 percent higher at the end of June than a year earlier, accelerating from a 13.5 percent increase at the end of March, the Bank of Korea said.
Comments
Comments are closed.