South Korea’s central bank on Monday trimmed its forecast for economic growth in Asia’s fourth-largest economy this year due to a global downturn and weak domestic demand.
The Bank of Korea said it expected gross domestic product to grow a real 3.5 per cent, down from its previous forecast in December last year for 3.7 per cent growth. The revision was attributed to a weaker contribution from foreign trade as well as rising commodity prices.
Annual private consumption growth was also seen weaker at a real 2.8 per cent from 3.2 per cent previously. However the bank expected consumption to improve steadily throughout the year in line with trade, as consumption is heavily influenced by the performance of major exporting companies.
The bank also slightly wound back its forecast for inflation, saying consumer prices were expected to rise 3.2 per cent on average in 2012, down from a forecasts for growth of 3.3 per cent previously.
Inflation in South Korea is largely expected to ease on expanded government subsidies for child daycare and free school lunches this year.
“The current situation of (the South Korean economy) is more stable with less volatility compared to the previous few months,” said Bank of Korea governor Kim Choong-soo last on Friday after interest rates were held for a tenth straight month.
Despite mainly positive comments on the economy, Kim provided few clues on future policy direction as interest rates are expected to be held steady for the rest of the year.
South Korea’s headline annual inflation growth slowed to a two-year low of 2.6 per cent in March, but the central bank has emphasised that inflation expectations are still high.Revised export numbers in March were unchanged from preliminary numbers, which showed negative 1.4 per cent growth last month due to slowing demand.
Geopolitical tension in the Korean Peninsula also remains a risk that could destabilise the region, as government officials in South Korea have said North Korea could make sudden provocations following its failed missile launch.