South Korea central bank trims GDP, inflation forecasts

SEOUL Sun Apr 15, 2012 8:02pm EDT

An employee of the Bank of Korea moves packs of banknotes during a photo call at the bank's headquarters in Seoul September 6, 2011. REUTERS/Lee Jae-Won

An employee of the Bank of Korea moves packs of banknotes during a photo call at the bank's headquarters in Seoul September 6, 2011.

Credit: Reuters/Lee Jae-Won

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SEOUL (Reuters) - South Korea's central bank on Monday trimmed its forecast for economic growth in Asia's fourth-largest economy this year due to a global downturn and weak domestic demand.

The Bank of Korea said it expected gross domestic product to grow a real 3.5 percent, down from its previous forecast in December last year for 3.7 percent growth.

The revision was attributed to a weaker contribution from foreign trade as well as rising commodity prices.

Annual private consumption growth was also seen weaker at a real 2.8 percent from 3.2 percent previously. However the bank expected consumption to improve steadily throughout the year in line with trade, as consumption is heavily influenced by the performance of major exporting companies.

The bank also slightly wound back its forecast for inflation, saying consumer prices were expected to rise 3.2 percent on average in 2012, down from a forecasts for growth of 3.3 percent previously.

Inflation in South Korea is largely expected to ease on expanded government subsidies for child daycare and free school lunches this year.

"The current situation of (the South Korean economy) is more stable with less volatility compared to the previous few months," said Bank of Korea governor Kim Choong-soo last Friday after interest rates were held for a tenth straight month.

Despite mainly positive comments on the economy, Kim provided few clues on future policy direction as interest rates are expected to be held steady for the rest of the year.

South Korea's headline annual inflation growth slowed to a two-year low of 2.6 percent in March, but the central bank has emphasized that inflation expectations are still high.

Revised export numbers in March were unchanged from preliminary numbers, which showed negative 1.4 percent growth last month due to slowing demand.

Geopolitical tension in the Korean Peninsula also remains a risk that could destabilize the region, as government officials in South Korea have said North Korea could make sudden provocations following its failed missile launch.

(Reporting by Christine Kim; Editing by Richard Pullin)

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