South Korea's central bank has lowered the country's growth forecast for 2012 to 3.5 percent on account of the global economic slowdown that has resulted in the weakening of exports.
In its revised 2012 economic outlook, the Bank of Korea (BoK) said that it was lowering the 3.7 percent growth projection made in December. In 2011, the GDP grew by 3.6 percent. Exports are expected to grow by 4 percent this year.
The recent easing of uncertainties on Europe's debt problems is a positive factor, but downward revisions of global economies and rising oil prices are overshadowing such positive factors, the BoK said in a statement.
The BoK said that headline inflation would probably ease to 3.2 percent this year, which is within its target range of two to four percent. Core inflation, which excludes volatile energy and food costs, is expected to come down to 2.6 percent for this year, according to the BoK.
The new forecast follows the decision by the BoK last week to keep the key interest rate unchanged at 3.25 percent, subsequent to the inflationary pressures seen in the country.
Rising inflation has been a key concern for the general public for some time. Much of the increase in food prices relates to higher global commodity prices. South Korea was hit by bad weather and foot-and-mouth outbreaks in recent years.
With respect to the increasing food prices, the issue has become a major concern for the policymakers. South Korea's inefficient supply chains are considered to be a major reason in keeping food prices higher than they would otherwise be.
At the same time, the bank had acknowledged that the country was undergoing a moderate economic growth. Although export growth has slowed, the Monetary Policy Committee appraises economic growth to have shown signs of a moderate recovery, with consumption and construction investment increasing, the central bank had said in a statement.
Last week, the Asian Development Bank (ADB) said that the country's economic growth was expected to slow down as its exports were going to be badly impacted by decreasing global demand.
Growth for 2012 is forecast at 3.4 percent below potential, rising moderately in 2013 to 4.0 percent. These rates are based on the expectation that (South Korea's) main export markets, including the European Union, the United States and Japan, will experience slow growth at best, the ADB said in a report.
The ADB has projected the consumer price inflation to retreat to 3 percent in 2012.
Meanwhile, there is a possibility that the BoK will have to further cut the growth forecast for the year if the situation in Europe worsens subsequent to the re-emergence of the debt problems in Spain.