South Korea's Finance Ministry lowered this year's economic growth forecast to take account of higher oil prices and the likelihood of slowing exports.
The US$887 billion economy will expand at a "upper 4 percent" pace this year, down from a previous forecast of 5 percent, Finance Minister Kwon Okyu said last week. His comments were embargoed until yesterday.
Increasing oil prices are fanning inflation and boosting costs to businesses and consumers in an economy that imports 97 percent of its energy needs. Exports may slow as the US housing recession cools the expansion of the world's biggest economy, damping global growth.
"Our external conditions will be tougher than in 2007," Kwon said. "Downside risk factors such as high oil prices and the US subprime problem are increasing."
Inflation is becoming a "burden" for the government, Kwon said. The central bank should closely check prices and economic and financial market conditions to "flexibly" manage its interest rate policy, he said.
The Finance ministry's new forecast is close to the estimate published by the Bank of Korea last month. The central bank sees growth of 4.7 percent, cooling from an estimated 4.8 percent last year. The economy grew 5.2 percent in the third quarter from a year earlier, the fastest annual pace in almost two years.
The economy may get a boost as the new president moves to implement his pledges to stimulate growth, said Lee Sang-jae, an economist at Hyundai Securities Co in Seoul.
Lee Myung-bak won a landslide victory last month to become the nation's first president from a corporate background. He has promised to increase annual economic growth to 7 percent and double per capita income to about US$40,000 by 2017. Planned projects include a 550km canal running almost the length of the country.
"The new government will likely take more steps to boost the economy," Lee at Hyundai Securities said. "So, the chances are rising that this year's growth may beat forecasts."
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