Korea`s 2011 growth target lowered to 4-pct. range

The government is expected to lower its economic growth projection for this year due to the aftereffects of rising inflation and international oil prices.

A high-ranking official at the Strategy and Finance Ministry said Sunday, “Since late last year when the government announced its 2011 growth forecast, unexpected factors have appeared such as sharp rises in international oil and commodities prices and the spread of foot-and-mouth disease.”

Considering these factors, the initial growth target of around 5 percent will likely be cut to the upper 4-percent range.

Though the economy grew 4.2 percent in this year`s first quarter, domestic consumption has remained lackluster due to rises in international oil and consumer prices.

With per capita income posting its first decline in 27 months in the first quarter, domestic consumption is not likely to increase soon. Experts warn that domestic demand will further fall if the key interest rate is raised to fight inflation.

Growth predictions by economic think thanks at home and abroad also remain around 4 percent. Both the Bank of Korea and the International Monetary Fund forecast Korea’s GDP growth this year at 4.5 percent. Samsung Economic Research Institute projected a rise of 4.3 percent and LG Economic Research Institute 4.1 percent.

The Asia Development Bank had the highest outlook at 4.6 percent.

The government will also raise its inflation target to the upper 3-percent range. Prices of farm, livestock and fisheries goods began falling in April, but those of international oil and raw materials continued to rise. In addition, public service charges such as bus fares will probably see a gradual raise.

Continuing economic stimulus policies in the U.S. and earthquake recovery efforts in Japan are pushing up commodities prices. China’s high inflation is also putting upward pressure on Korea’s consumer prices.

The Bank of Korea upgraded its inflation projection from 3.5 percent to 3.9 percent last month. The LG think tank did the same from 3.1 percent to 3.8 percent.

Samsung forecasts Korea`s inflation rate to reach 4.1 percent and the IMF 4.5 percent.

weappon@donga.com