(Updates with BOK official’s comment in sixth paragraph.)
Dec. 9 (Bloomberg) -- South Korea’s growth is set to slow and inflation may ease next year, the Bank of Korea said a day after leaving borrowing costs unchanged on concern Europe’s debt crisis poses risks to Asia’s fourth-biggest economy.
Gross domestic product is likely to expand 3.7 percent in 2012 and 4.2 percent in 2013, compared with 3.8 percent this year, the central bank forecast in a statement released in Seoul today. Consumer prices may increase 3.3 percent next year after a 4 percent gain in 2011, it said.
Governor Kim Choong Soo left the seven-day repurchase rate at 3.25 percent for a sixth month yesterday, the longest pause since tightening began in July 2010. Downside risks to growth are “high” because of the European turmoil, possible slumps in major economies and unrest in international financial markets, the central bank said in its statement yesterday.
“The BOK will likely use a rate cut as the last resort only when the economy faces a risk of recession,” Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul, said before the release. “It will likely stay pat well into the first half of next year, opting to wait for a clearer picture in Europe.”
The won fell 0.7 percent to 1,138.90 per dollar as of 9:46 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi stock index dropped 2 percent.
Growth Forecast Cut
The Bank of Korea may have to cut its forecast for 2012 GDP again if the crisis in Europe worsens beyond the first quarter of next year, which seems unlikely at the moment, Lee Sang Woo, director-general of the Bank of Korea’s research department, told reporters in Seoul today.
Quarterly economic growth may slow to 0.7 percent in the first quarter before rebounding to 0.9 percent in the second and 1.1 percent each in the third and fourth, Lee said. He projected 1 percent growth for this quarter from the previous.
The central bank in July projected economic expansion of 4.6 percent and 3.4 percent inflation for next year. Consumer prices rose 4.2 percent in November compared with a year ago, breaching the bank’s target limit of 4 percent.
Producer prices climbed 5.1 percent in November from a year earlier, the slowest pace in a year, as vegetable and fruit prices declined on increased output amid warm weather, according to a central bank report today.
The central bank today forecast that the jobless rate will drop to 3.4 percent next year from 3.5 percent this year. The nation’s current-account surplus is expected to narrow to $13 billion in 2012 from $27.2 billion this year.
--Editors: Iain Wilson, Brendan Murray
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