IMF Upgrades South Korea’s GDP Forecasts Amid Rebound
South Korea’s economy will shrink less than previously expected this year and rebound at a faster pace in 2010 as government spending and lower borrowing costs drive a recovery, the International Monetary Fund said today.
The central bank should keep its interest rate unchanged at a record-low 2 percent following the 3.25 percentage points in reductions since October last year and the government should maintain fiscal stimulus through 2010, Subir Lall, division chief for the IMF’s Asia-Pacific department, said in Gwacheon.
The fund forecast gross domestic product will contract 3 percent in 2009 before expanding 2.5 percent next year, compared with its April estimates of a 4 percent decline and 1.5 percent growth respectively. The Kospi stock index climbed 28 percent this year as government relief measures helped the economy avoid following Taiwan, Japan, and Singapore into recession.
“The authorities’ rapid and comprehensive fiscal, monetary and financial policy response helped limit the depth of the downturn in the wake of the global financial turmoil,” the IMF said in a statement today following a two-week review of Asia’s fourth-biggest economy.
“The outlook is, however, subject to substantial uncertainty although overall risks are now titled slightly to the upside cash loans in 1 hour.”
All 15 economists surveyed by Bloomberg News forecast the central bank will leave its key rate unchanged for a fifth month on July 9. The government has pledged more than 67 trillion won ($53 billion) in stimulus measures and also set up funds to replenish Korean lenders’ capital and buy distressed assets.
Exports Rebound
Exports, which are equivalent to about half of GDP, climbed 17 percent in June from the previous month to the highest level since October and factory production increased for a fifth month in May from April, reports last week showed.
The government last month raised its GDP forecasts, saying fiscal stimulus and lower rates are stoking consumer confidence. The economy will shrink 1.5 percent this year and grow 4 percent in 2010, the finance ministry said in its semiannual outlook.
South Korea avoided a technical recession in the first quarter, with GDP edging up 0.1 percent from the previous three months, when it shrank 5.1 percent.