South Korean central bank cut on Friday its 2013 economic growth outlook for the country to 2.8 percent, citing uncertainties over the U.S. fiscal consolidation and the economic sluggishness in the euro area.
Bank of Korea (BOK) revised down its outlook for the country's 2013 gross domestic product (GDP) growth to 2.8 percent from 3.2 percent estimated three months before. The 2014 growth outlook was set at 3.8 percent.
The downgraded 2013 outlook was lower than a 3 percent growth unveiled by the finance ministry and a 3.1 percent expansion estimated by the Organization for Economic Cooperation and Development.
"The U.S. economy will continue its recovery trend in 2013, but the growth rate is expected to fall more or less this year compared with last year due to effect from fiscal consolidation. The euro area is forecast to post a minus growth in 2013 due to effect from weakening domestic demand stemming from the implementation of the fiscal pact in the region," the BOK said in a press release.
The revision came after the central bank held the benchmark interest rate on hold at 2.75 percent at the first rate-setting meeting of 2013, maintaining its wait-and-see stance for three straight months.
BOK Governor Kim Choong-soo said after the policy meeting that the European economy was expected to improve in the second half of 2013, noting that uncertainties over the U.S. economy disappeared more or less following the so-called small deal over the fiscal cliff issue. Kim added that the Chinese economy was improved given the faster-than-expected growth in exports.
The BOK forecast the South Korean economy would grow 1.9 percent in the first half before jumping to a 3.5 percent gain in the second half, saying that the recovery would accelerate going forward in line with the global recovery.
Private consumption was predicted to rise 2.8 percent in 2013 from a year earlier due to gradual recovery in consumer sentiment and easing uncertainties over external conditions, but the growth would be limited due to massive household debts and the slumping real estate market.
The 2013 outlook for facility investment growth was placed at 2. 7 percent thanks to the recovery in the IT sector and the continued expansion in the non-IT industry, with the figure for construction investment expected to show a moderate gain of 2.5 percent in 2013.
Goods export growth was expected to accelerate from 3.6 percent in 2012 to 5.5 percent in 2013, before jumping to 8.2 percent in 2014. The faster growth outlook was attributed to gradual recovery in the global economy and a rise in trade volume.
Meanwhile, the outlook for the 2013 current account surplus was upgraded to 32 billion U.S. dollars from 25 billion dollars estimated in October last year. The 2014 surplus outlook was placed at 27 billion dollars.
The 2013 outlook for consumer price inflation was downgraded to 2.5 percent from 2.7 percent estimated three months before. The downgrade was attributed to the government's expansion in welfare policy such as support for childcare facilities and free school meal, the bank said.
The labor market conditions were expected to show underperformance. The number of people employed was predicted to increase by 300,000 in 2013, down from a 440,000 increase in 2012. The outlook for the jobless rate was set at 3.3 percent for 2013, up from 3.2 percent in the previous year.