Bank of Korea Raises 2010 GDP Growth Forecast to Bank of Korea Raises 2010 GDP Growth Forecast to 4.6%

Dec. 11 (Bloomberg) -- South Korea’s economy will expand next year at a faster pace than previously forecast as a pickup in the global economy boosts demand for the nation’s goods, the Bank of Korea said today.

Gross domestic product will increase 4.6 percent in 2010, after gaining 0.2 percent this year, the central bank said in its economic outlook for 2010 in Seoul today. In July, the central bank estimated the economy would contract 1.6 percent in 2009, before expanding 3.6 percent next year. In 2011, the economy will expand 4.8 percent, it said.

Governor Lee Seong Tae left the seven-day repurchase rate at a record-low 2 percent yesterday, while saying the central bank shouldn’t wait too long before gradually raising interest rates provided the recovery maintains momentum. The benchmark Kospi stock index has climbed 47 percent this year as investors bet on the expansion continuing.

“The central bank’s forecast is line with the government’s as well as other economic research,” said Go You Sun, an economist at Daewoo Securities Co. in Seoul. “The global economy will be better next year and will help South Korea’s exports. A forecast for faster economic growth justifies a rate increase by the central bank.” Go expects the Bank of Korea will raise borrowing costs as early as February 2010.

The won fell 0.3 percent to 1,165.42 per dollar yesterday, according to data compiled by Bloomberg, and touched 1,166.95, the weakest level this month.

Increased Spending

President Lee Myung Bak’s administration increased spending to support consumer purchases and cushion the economy from the worst global recession since World War II. The central bank cut the benchmark interest rate by 3.25 percentage points between October 2008 and February, the most aggressive easing since it began setting a policy rate a decade ago.

“Our economy in the future will post bigger growth as momentum strengthens thanks to a recovery in the global economy and an improvement in consumption,” the central bank said today. “The private sector is likely to lead economic growth as policy impacts weaken,” it said. Still, there are a number of “uncertainties,” including a possible delay in the global recovery.

South Korea’s economy expanded 3.2 percent in the third quarter, the fastest pace in seven years as companies including Samsung Electronics Co. and Hyundai Motor Co. reported rising quarterly profits. The Finance Ministry said yesterday the economy would expand 5 percent next year.

Manufacturers’ Confidence

Still, industrial production unexpectedly dropped 3.8 percent in October from September and inflation remained below the central bank’s target of between 2.5 percent and 3.5 percent for a sixth month in November. Manufacturers’ confidence slipped to the lowest level in four months and consumer confidence dropped for the first time in eight months in November.

Goods exports will rise 9.3 percent next year, after decreasing 0.1 percent in 2009, the central bank said today. South Korea’s overseas shipments make up about 50 percent of the $929 billion economy.

Private consumption will probably gain 0.3 percent this year and rise 3.6 percent next year. Corporate investment on facilities will increase 11.4 percent in 2010, reversing a 9.6 percent drop this year, the bank estimates.

Consumer-price inflation will average 2.8 percent this year and next, the central bank said. The core inflation rate, which excludes fresh food and oil, will rise 3.6 percent this year before slowing to 2.5 percent in 2010, it predicted.

The nation will post a current account surplus of $43 billion this year, more than the $29 billion estimated in July, the bank said. The surplus is likely to shrink to $17 billion in 2010, it forecast.

The International Monetary Fund this week raised its 2010 economic growth forecast to 4.5 percent.