South Korea economy to lose steam in 2011

By Cheon Jong-woo

SEOUL (BestGrowthStock) – South Korea’s economy is expected to grow faster this year than economists had forecast three months ago on stronger domestic and export demand, but growth is seen easing more than expected in 2011, a Reuters poll shows.

The stronger outlook for Asia’s fourth-largest economy and a tide of investment flows into its markets prompted analysts to slightly upgrade their forecasts for a rise in the won, although authorities are likely to check its strength.

“It is premature to conclude that the economy hit a peak as growth momentum is seen accelerating again around the end of this year,” said Yoon Chang-yong, an economist at IBK Securities.

The economy is forecast to expand 6.1 percent in 2010, higher than a 5.7 percent growth forecast in a quarterly poll published in July.

Exports demand has been stronger than expected this year. The economy ministry raised its full-year exports forecast in early September.

But analysts have downgraded their forecasts for growth in 2011 to 4.3 percent from 4.5 percent in the prior survey as global expansion is expected to be moderately lower than previously thought.

The IMF cut its 2011 global forecast by 0.1 percentage point to 4.2 percent last week.

South Korea has pulled out of the global financial crisis ahead of most other countries. Next to Turkey, it is expected to achieve the fastest growth in 2010 among members of the Organization for Economic Co-operation and Development.

Economists stuck to their view that the central bank’s base rate, the 7-day repurchase agreement rate, would rise to 2.5 percent by the end of the year.

But they downgraded their expectations for where the rate would be at the end of 2011 to factor in U.S. and Japanese moves toward easier monetary policy to battle their faltering recoveries.

They forecast the rate would be at 3.25 percent at the end-2011, down from 3.50 percent forecast in the July poll.

The latest forecasts were made before the Bank of Korea’s interest rate meeting on Thursday, where it left rates steady.

“Monetary authorities should not aggressively raise the target rate due to the major countries’ competition to increase market liquidity to defend their currency and to boost their economy,” said Lee Sung-kwon, chief economist at Shinhan Investment Corp.

The won is seen ending the year at 1,100.0 per dollar, unchanged from the previous poll, and at 1,022.5 at the end of the next year, slightly higher than 1,050.0 in the last poll.

The won was trading at 1,109.65 on Thursday.

(Editing by Neil Fullick)

South Korea economy to lose steam in 2011