SEOUL, Dec 28 (Reuters): South Korea's economic growth will accelerate to 5.0 per cent in 2006 from 3.9 per cent in 2005, the finance ministry said Wednesday as it promised to maintain pro-growth policies.
In a 2006 policy statement, the ministry said a broad-based recovery in Asia's fourth-largest economy had yet to move into full swing and there were still risks to growth.
The ministry did not directly comment on interest rates-the central bank has raised them twice in the fourth quarter-but a senior official told reporters the ministry expected them to stay low enough to support further economic growth.
"It means that the call rate will likely stay below what the Bank of Korea considers to be a neutral level for the time being, even though the rate is raised further," said Cho Won-dong, director-general of the economic policy bureau. The central bank lifted the overnight call rate target, which had been at a record low of 3.25 per cent, by 25 basis points in October and again in December to head off inflation as economic growth gathered pace. The next policy meeting is set for Jan. 12.
The ministry's first official forecast for 2006 growth matched the central bank's projection made earlier this month.
Growth will accelerate in several areas of the economy, including private consumption, capital investment and exports, the ministry forecast.
Private consumption will probably expand by 4.5 per cent in 2006, after rebounding by 3.1 per cent in 2005 from a 0.5 per cent contraction in 2004, the ministry said. This was in line with the Bank of Korea's projection.
Exports will grow at a double-digit pace, helped in part by the improving quality competitiveness of South Korean products, although construction spending could slow down, the report said.
In August, the government took steps to cool the property market, including higher tax rates on multiple-home and big-land owners, sparking concerns about the construction sector.
The ministry cited the impact of rising local interest rates on consumer spending, volatile oil prices, and a possible slowdown in demand in major economies as potential risks.
It said the current account surplus would shrink to $15 billion in 2006 from a surplus of about $18 billion in 2005 due to a widening deficit in services.
The Bank of Korea said earlier Wednesday the current account surplus for November had narrowed to a provisional $2.05 billion from $2.82 gain a year earlier.