South Korea's economy is expected to grow more slowly next year with the US credit crisis likely to cut exports and high oil prices putting pressure on inflation, the central bank said Wednesday.
The Bank of Korea said it expects gross domestic product in Asia's third largest economy to expand by 4.7 percent in 2008, compared to the 4.8 percent estimated for this year. The estimate for 2007 was better than the central bank's initial projection of 4.5 percent. In 2006 the economy grew by 5.0 percent. The central bank's 2008 growth forecast is lower than estimates by private research institutes of 5.0 to 5.1 percent.
The Bank of Korea said a steep economic deceleration is unlikely but "heightened external uncertainties" may limit growth momentum. "We see the possibility of higher oil prices causing global economic growth to ease and fears of inflation spreading," it said in a statement.
"There are also worries that the US economy could slow down because of the revaluation of subprime-related assets and a rise in poor-quality assets." With US demand seen dwindling, growth in exports is expected to ease to 10.3 percent in 2008 from the 11.3 percent growth forecast for this year.
Private consumption, another major economic pillar, is forecast to grow by 4.3 percent in 2008, slightly lower than the 4.4 percent growth projected for this year. The central bank cited likely higher interest rates and a decline in the so-called wealth effect from the stock market rally.
Investment in plant facilities is seen growing by 6.4 percent next year compared to 7.6 percent for 2007, as companies reduce spending amid heightened uncertainty in the global economy. But growth in construction investment is expected to accelerate to 2.8 percent in 2008 from an estimated 1.8 percent this year, thanks to state-led development projects and an increase in construction of commercial buildings.