Bank of Korea Raises Growth Forecast to 5.9%

South Korea’s central bank raised its forecast for the country’s economic growth this year to 5.9 percent on solid exports as well as capital and consumer spending amid a stronger global recovery.

The Bank of Korea, which had previously expected an expansion of 5.2 percent in 2010, made the revision Monday in a report on the economic outlook for the second half of the year.

“Goods exports and facilities investment are forecast to maintain strong growth owing to stronger recovery of the global economy, (a) favorable IT industry and demand for changes in production facilities,” the bank said. Consumer spending, meanwhile, will get a boost from higher household purchasing power, it added.

The brighter assessment comes after the South Korean government last month raised its forecast to 5.8 percent from 5 percent. More recently, the International Monetary Fund last week said the economy would expand 5.75 percent this year, compared with its previous forecast of 4.5 percent.

South Korea’s economy, Asia’s fourth-largest, has recovered strongly after contracting during the global financial meltdown, boosted by exports, government stimulus and record low interest rates. It managed growth of just 0.2 percent last year.

The robust recovery and inflation worries, however, pushed the Bank of Korea to raise its benchmark borrowing cost to 2.25 percent Friday from 2 percent, the record low where it had been since February 2009. The hike came earlier than expected.

In its report Monday, the central bank also raised its growth forecast for the second quarter to 1.2 percent from the previous 0.8 percent and said the economy likely grew 7.4 percent in the first half of the year. The BOK is set to announce preliminary gross domestic product figures for the three months ended June 30 around the end of this month.

It also said, however, that growth is expected to slow marginally to 0.7 percent in the third quarter before accelerating to 0.9 percent in the fourth. For 2011, the bank is predicting growth to slow to 4.5 percent.

South Korea’s current account surplus is expected to approximately halve to $21 billion in 2010 from last year’s record high of $42.7 billion, the bank said, citing a wider services deficit and an increase in imports in line with stronger domestic demand.

Regarding prices, the BOK said that consumer price inflation was expected to increase at a faster pace in the second half of the year and would exceed the bank’s medium-term inflation target of 3 percent from the fourth quarter onward.

For the 2010, CPI will reach 2.8 percent, the same as last year, but is expected to rise to 3.4 percent in 2011, the central bank said.

KELLY OLSEN, AP Business Writer SEOUL, South Korea