S.Korea's Economic Growth Forecast to Gather Steam in 2006

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S.Korea's Economic Growth Forecast to Gather Steam in 2006

SEOUL, Nov 18, 2005 - South Korea's economic growth will reach 4.8 per cent next year as private spending enters a full recovery pace and investment gains ground, a private economist said Friday.

Jung Moon-kun, an executive at Samsung Economic Research Institute (SERI), made the assessment at a monthly breakfast meeting of business executives sponsored by the International Management Institute, an institute under the Federation of Korean Industries.

"Private spending will enter a full recovery pace after being brought down by the busting of a consumer credit bubble (at the end of 2002)," Jung said.

"Companies' capital spending will rise 6.5 per cent, while construction investment will expand 3.4 per cent, although the current account surplus is expected to shrink as imports rise faster than exports."

The assessment is in line with a SERI prediction made last month. In mid-October, the institute said Asia's fourth-largest economy will post 4.8 per cent growth fueled by a recovery in private spending.

Most international and domestic institutions are predicting the world's 11th-largest economy will grow nearly 5 per cent in 2006 on the back of healthier consumer spending. The International Monetary Fund said Friday it would grow to this level from an estimated 3.8 per cent this year.

Jung, however, cautioned that strong anti-business sentiment and the government's comprehensive tax-raising regulations on housing prices may dampen the economy's growth momentum.

An expected fall in housing prices from the Aug. 31 regulation by the Ministry of Finance and Economy could massively deflate asset prices and drive the asset quality of the nation's financial institutions down, it said.

Other key areas of concern for South Korea's economy are global oil prices and shrinking demand from China, Jung said.

The Korean economy has been gathering ground this year as private spending picks up and exports remain resilient.

The country's gross domestic product grew an annual 4.4 per cent in the third quarter, compared with a 3.3-percent gain in the second quarter and a 2.7-percent increase in the first.

South Korea's government front-loaded its budget and cut taxes in the first half to boost growth, while the Bank of Korea retained its key interest rate at a record low until September.



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