RTTNews - Thursday, South Korea raised its gross domestic product or GDP forecast for 2009, citing signs that the economic slowdown is easing on massive fiscal stimulus and interest rate cuts. The government also pledged to continue its expansionary policies during the rest of the year.
The economy will contract 1.5% this year, the Ministry of Strategy and Finance said, up from a 2% fall predicted previously. The ministry forecast GDP to expand 4% in 2010, unchanged from its previous forecast.
The government raised its outlook a day after the Organization for Economic Co-operation and Development or OECD upgraded its economic outlook for its 30 member countries. The Paris-based think-tank forecast South Korea's GDP to fall 2.2% this year and to grow by 3.5% in 2010.
The OECD has recommended that as the economy strengthens, the growth of government spending should be scaled back to bring the budget back into balance, while pursuing tax reform to create a more growth-friendly system.
However, the World Bank's prediction for the country is much gloomier compared to the other two forecasts. The international lender sees an economic contraction of about 3%-3.5% this year. Thereafter, the economy is expected to grow 2% in 2010 and will record 4%-5% growth in 2011.
The country's Finance Minister, Yoon Jeung-hyun said in a press briefing that the government will continue the expansionary policy in the later half of the year and it will withdraw stimulus once the economy recovers.
The finance ministry also forecast that South Korea's GDP will increase almost 2% in the second quarter from the first, when it grew just 0.1%, skipping a technical recession.
The government had implemented several stimulus packages and the Bank of Korea, the country's central bank kept its key interest rate at a record low of 2% for the fourth consecutive month in June to boost the economy.
According to the latest forecast, South Korea's exports are set to decline 16% this year and then it will post a quick recovery by growing 11% in 2010. Reflecting weak demand at home, imports are forecast to slump 24% this year and expand 16% next year.
The number of people out of work this year would be close to 150,000 compared with a February forecast of 200,000. The jobless rate is expected to be 3.6%-3.7% in 2009.
Moreover, the ministry forecasts private consumption to fall 1.8% in 2009 and rebound 3% next year. Consumer price inflation is expected to average below 3% this year.
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