Think tank lowers South Korea growth to 4.2%

Updated: 2010-11-22 17:22
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SEOUL -- The Korea Development Institute, a state-run think tank, lowered its forecast for the country's economic growth next year from 4.4 percent to 4.2 percent in light of the global economic slowdown.

The institute also said that this year's growth will be 6.2 percent, up 0.3 percentage point from the prior projection of 5.9 percent made in May.

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The KDI's projection for next year is lower than the 5 percent expansion forecasted by the finance ministry and the 4.5 percent forecast made by the Bank of Korea.

The institute said its outlook on next year's economic growth reflects a slight slowdown of the global economy next year compared to this year. It added that its growth forecast for next year also reflects an expected increase in crude oil prices and the South Korean won's appreciation against the US dollar, which usually hurts the country's exports, one of its main growth engines.

KDI said that compared to this year, crude oil prices may rise about 10 percent to an average of $85 per barrel in 2011, with the won expected to appreciate at about the same rate as this year.

According to its report, domestic consumption is expected to expand 4.1 percent on the strength of improved income earnings and job market conditions with business and construction-related investments to go up 8.5 percent and 3.4 percent each.

The institute also said there is a need to normalize the country's interest rates to counter inflationary pressure and give more leeway to the government, which can use rate adjustments as a policy tool in the future.