State think tank downgrades S. Korea's growth forecast

The South Korean economy is expected to grow at a slower-than-expected pace this year because of soaring oil prices and other unfavorable external business conditions, a state think tank said Sunday.

The nation's economy, Asia's fourth-largest, is likely to expand 5.1 percent for the full year, down from an earlier estimate of 5.3 percent, the Korea Development Institute said in its latest economic outlook report.

The economy is estimated to have advanced in the high 5-percent range, but its growth rate is projected to reach the mid 4-percent band, it said.

"The growth rate of the economy is predicted to slow down in the second half if surging oil prices weigh on the global economy," the think tank said.

KDI's full-year growth projection is based on a projection that international oil prices may average US$62 a barrel this year.

"South Korea may see its economic growth rate drop further if crude prices remain high (for the rest of the year) as they are now," it warned.

With tension in the Middle East rising, international oil prices have soared past $70 a barrel, prompting predictions that they may soon break through the psychological resistance level of $80 a barrel.

South Korea, the world's fourth-largest crude buyer, depends entirely on imports for its oil needs, bringing in nearly 80 percent of them from the Middle East.

According to the KDI report, South Korea's private consumption is expected to expand 4.5 percent this year from the previous year, compared with its previous estimate of 4.8 percent.

Exports in the second half are likely to slow from a 13.5 percent gain in the first half, with the nation's current account surplus tumbling to $4 billion this year from $16.6 billion last year.

Consumer prices are likely to grow 2.6 percent annually for the whole year, with inflationary pressures building up in the second half.

Despite an array of unfavorable external factors, there is no need for the government to change its macroeconomic policy, but more efforts should be made to stabilize consumer and investor sentiments, the think tank said.

Seoul, July 16 (Yonhap News)