The South Korean government on Thursday revised downward its economic growth forecast for 2007 due to cooling exports and weak private spending, showing a shrinking confidence in Asia's third-largest economy.
In its 2007 economic blueprint, the Ministry of Finance and Economy forecast the Korean economy would expand 4.5 percent this year, down from its previous forecast of 4.6 percent and an estimated 5 percent growth last year.
The expected slowdown is attributed to the local currency's ascent to the U.S. dollar and a slowdown in the U.S. economy, which has reduced the demand for Korean exports. Domestic spending is also expected to log a weaker-than-expected growth pace due to mounting household debt and low employment.
"For 2007, the government gave a 'realistic' projection rather than simply handing out a rosy forecast," said Lee Sang-jae, an economist at Hyundai Securities. "Despite the fact that growth figures in most industries declined, the projection is not so bad and is mostly in line with what had been expected previously."
According to the ministry, both exports and domestic spending will log slower growth in 2007.
Due to rising household debt and a low savings rate, on-year domestic spending growth is expected to fall to 3.9 percent in 2007 from an estimated 4.2 percent last year. Export growth is also forecast to lose steam to 10 percent this year from 14.6 percent last year.
Corporate capital spending, seen as essential for boosting the economy and creating jobs, will grow 6.5 percent this year, down from an estimated 7.5 percent expansion last year.
In the job market, there will be around 260,000 new jobs created with an additional 30,000 to 40,000 jobs added through government-led projects in 2007, figures that compare with around 300,000 jobs created last year.
The current account surplus will fall to US$1 billion from $6 billion due to a widening service account deficit, which will nearly double to $2.56 billion this year, the ministry added.
To create more jobs and improve the economy, the government will front-load 56 percent of its budget in the first half and improve the business environment for small- and medium-sized businesses, the ministry said.
In addition, the government will also push through a variety of property market schemes, including launching a pilot project on semi-lease apartments, as well as boosting the service industry.
The 2007 economic policy outline shows that the government intends to stably manage the economy instead of giving any short-term injections, analysts said.
The government's stance to manage the property market more stably is also positive, given the market's unpredictable condition, they said.
"Any kind of short-term economic boost will be inappropriate this year," Lee at Hyundai said. "The blueprint shows that the government plans to focus on micro-economic policies such as property market stabilization and the improvement of small- and medium-sized businesses," Lee said.
South Korea's house prices have emerged as one of the key concerns for the Korean economy, fueling concern over a Japan-like property price bubble burst.
Despite a series of hard-line property regulations, house prices and home-backed loans in South Korea have soared in recent months, leading the nation's financial regulator and the central bank to unveil policies to rein in the issuing of home-backed loans.
Seoul, Jan. 4 (Yonhap News)
S. Korea downgrades 2007 economic growth forecast |
