South Korea's GDP Predicted to Grow 10.2%

SEOUL, South Korea -- South Korea's central bank said Monday that it expected gross domestic product growth of 10.2 percent this year, compared with an earlier forecast of 8.8 percent, and raised its projection for 2000 as well.

The Bank of Korea also cut its forecast for the average growth of the consumer price index, the nation's main inflation indicator, in 2000 to 3.1 percent from an earlier 3.8 percent.

"It's very significant to note that the central bank has revised up its GDP growth forecast for 2000 while lowering its inflation forecast," said Park Yong-suk, economist at Daewoo Economic Research Institute.

"The downward revision in the CPI reflects the central bank's belief that the appreciation of the won against the dollar will continue. A stronger won will help to offset or even lower inflation as it reduces won-denominated prices of imports."

The bank forecast GDP would grow 7.2 percent in 2000, compared with an earlier projection of 6.4 percent.

It kept its 1999 inflation forecast unchanged at 0.8 percent but said higher workers' wages and international raw material prices, along with an increase in domestic consumption, would drive the CPI higher in 2000.

The bank said price stability was key to maintaining healthy economic growth.

"The lower CPI figure for 2000 is interesting. I think the only way they can do it is let the won strengthen," said Brian Hunsaker, head of research at Dresdner Kleinwort Benson.

The central bank said its forecasts for 2000 were based on an average exchange rate of 1,120 won per dollar. The won closed Monday morning at 1,132.7.

South Korea is coming off a year of strong growth, with year-on-year figures magnified by results from the year before, when the economy contracted in the aftermath of the regional financial crisis.

The central bank said it expected fourth quarter 1999 GDP to grow 13.6 percent compared to the same quarter a year earlier, when GDP contracted 5.3 percent.