The Korea Herald

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OECD trims Korean growth outlook to 3.3%

By Korea Herald

Published : May 22, 2012 - 19:49

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The Organization for Economic Cooperation and Development said Tuesday that South Korea’s economy will slow to 3.3 percent in 2012 from 3.6 percent in 2011 due to the deepening European debt woes.

But the OECD said in its economy outlook report that the Korean economy will pick up next year to achieve 4 percent growth.

In terms of global recovery, the Paris-based OECD said that it is slowly regaining momentum and that the world economy will grow by 3.4 percent in 2012 and 4.2 percent by 2013. It will be gradual and bumpy, however, due to eurozone risks, it said.

The report said following a slowdown in late 2011, Korea’s economic growth is projected to pick up gradually, led by a rebound in exports as world trade gains momentum.

“Trade will also be stimulated by the front-loaded implementation of the Korea-U.S. Free Trade Agreement beginning in 2012,” said the report.

Smaller terms-of-trade losses in 2012-13 will also have a less negative effect on income growth and domestic demand, the report stated, and may help balance the economic expansion by boosting the service sector which has been relatively stagnant thus far during the recovery from the 2008 global financial crisis.

The report noted that the central bank will need to raise its policy interest rate from the current level of 3.25 percent to keep inflation near the mid-point of its 2 to 4 percent target range.

The OECD, however, warned that although a stronger rebound in world trade could result in faster output growth in Korea, a deterioration in the euro area could weaken the global economy.

Moreover, there is considerable uncertainty about growth in China, Korea’s major trading partner, and in other emerging economies, it said.

Another risk factor, the OECD mentioned, is rising oil prices as Korea is the world’s fifth-largest oil importer.

The OECD expected that the unemployment rate in member countries will maintain a high level of about 8 percent in 2012 and 7.9 percent in 2013.

By Park Min-young  (claire@heraldcorp.com)