IMF: S. Korea on road to recovery
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South Korea's economic outlook is brighter as exports lead a recovery.
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SEOUL, South Korea -- Asia's fourth-largest economy, South Korea, will grow by 4.75 percent next year and 5.5 percent in 2005, according to a new forecast by the International Monetary Fund.
The IMF's Asia-Pacific chief Joshua Felman said in Seoul Tuesday that with the world economy picking up pace, the Korean economy was on its way to recovery, Yonhap news agency reported.
South Korea was one of the world's fastest-growing advanced economies last year, posting a 6.0 percent GDP rate.
But it has struggled this year on the back of tensions with the North, the impact of the SARS virus, a crackdown by the government on consumer credit, and a general softening of global demand.
It slipped into recession in the first half of the year, but has since showed signs of recovery in line with a recent boost in exports.
Regional analysts expect it to post growth of about 2 to 3 percent this year as demand picks up again for consumer goods from makers such as Samsung Electronics and LG Electronics, and motor vehicles from Hyundai, Kia and Daewoo.
Felman said it would be unwise to tighten the budget in 2004 as this could undermine recovery, Yonhap reported.
Felman also emphasized the need for long-term structural reform. He said that while Korean corporate governance has improved considerably, problems remained.
Global bank HSBC earlier this month lifted its 2004 GDP forecast for South Korea from 3.6 to 4.0 percent, but said in an accompanying commentary that it was likely the country's cyclical recovery would be "laborious".
"The domestic economy remains fragile and there is no danger of a rate hike by the Bank of Korea any time soon," it concluded.
HSBC regional strategist Mike Newton said rates instead should be cut, but the real estate market was "too sensitive politically" to permit that. He said the central bank was unlikely to tighten rates until after the April 2004 parliamentary elections at the earliest.
Also Tuesday, South Korea's top bank officials expressed concern about possible financial turmoil stemming from liquidity problems in the credit card sector.
Bank of Korea Governor Park Seung and other bank leaders agreed at a meeting Tuesday on the need for measures to help credit card companies cope with losses from increasing consumer debt defaults, Yonhap reported.
