South Korea’s economy is set to grow at its fastest pace in four years this year as the US expands and Europe’s slump eases, the nation’s central bank governor said yesterday.
Bank of Korea Governor Kim Choong-soo said Asia’s fourth-largest economy would expand 3.8 percent this year, unchanged from the bank’s earlier forecast.
Export-reliant South Korea had a bigger-than-expected gain in exports last month, despite concerns that the local currency’s appreciation against the US dollar would hurt exporters.
Kim said the US Federal Reserve’s decision to reduce its stimulus measures would be favorable for South Korea because it showed the US economy was recovering.
Despite the economic recovery, the bank revised down South Korea’s inflation rate for this year to 2.3 percent, from its October forecast of 2.5 percent. The inflation rate will pick up toward the end of this year within the bank’s inflation target of 2.5 percent to 3.5 percent, it said.
Kim’s remarks came after the central bank held its key interest rate steady for an eighth month.
The unanimous decision came amid concerns that Japan’s weak yen and the rise of the South Korean won could undermine growth.
Earlier this week, Goldman Sachs forecast the Bank of Korea would cut its interest rate, citing the local currency’s appreciation against the US dollar, a weak stock market and a tighter government budget.
The governor said the negative impact from the yen’s fall was limited to certain industries, such as automakers, steel and machinery, playing down the possibility that the bank would adopt policy measures in response to the yen’s weakness.
While the economic forecast may appear upbeat, there are still concerns that growth in South Korea is too reliant on big companies and is largely driven by the government spending rather than private industry.
South Korean Finance Minister Hyun Oh-seok said in a New Year speech that the ministry’s priority for this year would be helping private businesses rebound. The government is also trying to reform inefficient service industries and bloated state-owned companies.
The ministry forecast that South Korea’s economy would expand 3.9 percent this year, slightly more upbeat than the central bank.