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Bank of Korea says economic growth to slow in 2011

SHARE Bank of Korea says economic growth to slow in 2011

SEOUL, South Korea — South Korea's economic growth is set to slow to a more normal level of 4.5 percent next year following its strong recovery from the global financial crisis, the central bank said Friday.

The estimated expansion compares with expected growth of 6.1 percent in 2010, the Bank of Korea said in its economic outlook report.

South Korea is the world's 15th-largest economy and an export powerhouse home to major global manufacturers including Samsung Electronics Co. and Hyundai Motor Co.

The country's economy rebounded strongly this year after sputtering to a meager 0.2 percent expansion in 2009 following the financial crisis and global economic slowdown.

Growth of 4.5 percent next year "can be assessed as a level close to the trend level," the bank said in the report, highlighting that this year's strength followed last year's low base.

The 4.5 percent figure for next year was unchanged from the bank's July outlook, though the 6.1 percent estimate for this year was raised from the previous 5.9 percent.

South Korea's economy, Asia's fourth largest, will likely feel the brunt of next year's slowdown in the first half of the year as frontloading of budget spending — which can have a stimulatory effect — will be reduced during that period, the bank said.

"Momentum for economic recovery in advanced countries including the U.S. will gain strength in the second half," the bank said in offering a reason why the expansion is expected to pick up in the second half.

The bank said that growth was likely to strengthen to 4.7 percent in 2012.

Consumer price inflation, which has been a source of concern this year, is set to increase in 2011 to 3.5 percent from this year's expected 2.9 percent, the bank said.

South Korea's inflation rate hit 4.1 percent in October. The year-on-year increase was slightly outside the central bank's comfort zone. Its inflation target is 3 percent, though that includes what it calls a "tolerance range" of plus or minus 1 percentage point.

Inflation dropped to 3.3 percent in November, but the bank's monetary policy committee warned Thursday after leaving its key interest rate unchanged at 2.5 percent that the trend is for rising prices to continue.

The Bank of Korea aggressively cut the benchmark rate a total of 3.25 percentage points to a record low 2 percent between October 2008 and February 2009 as it worked with other central banks to fight the crisis and downturn.

The bank raised it to 2.25 percent in July amid inflation concerns and again to 2.5 percent in November.