The growth of the South Korean economy is expected to slow down to 3.8 percent next year as exports will likely shrink amid the flagging global economy, calling for careful exit from stimulus measures, a local think tank said Wednesday.
The 2011 growth of Asia's fourth-largest economy is forecast to contract from a 5.9 percent expansion predicted for this year, according to a report by the Samsung Economic Research Institute (SERI). The growth projection is sharply lower than a 4.5 percent expansion estimated by the Bank of Korea (BOK).
"Next year, the slowdown in the global economy is likely to lead exports to grow at a single-digit rate and facility investment will likely sharply ease down amid a sputtering recovery in construction investment," the think tank said.
"Given economic uncertainty at home and abroad, it is desirable to prudently carry out an exit strategy ... The need to raise the key interest rate is growing, but the normalization of the policy rate should be gradual and cautious so as to minimize the possible impact of a rate hike on the economy."
The report came as the BOK unexpectedly froze its key interest rate at 2.25 percent for the second straight month in September due to the faltering global economy and the still-slumping property market.
The BOK hiked the rate in July by a quarter percentage point from a record low of 2 percent, heralding the start of South Korea's stimulus exit. The chief of the BOK hinted that the process of the policy normalization would be moderate.
The SERI said the country's overseas shipments, which account for about 50 percent of the local economy, is expected to grow 7.9 percent next year after expanding 13.2 percent in 2010.
The growth of facility investment will likely decrease to 4.9 percent next year from 20.5 percent in 2010, mainly because tech firms and automakers sharply expanded their production capacity this year, it added.
The think tank said consumer prices are expected to grow 2.8 percent next year, down from 2.9 percent in 2010 as the economic slowdown will ease upward pressure on inflation. The BOK put its inflation projection at 3.4 percent for 2011.