S. Korea Central Bank Upgrades Economic Forecasts

South Korea's central bank on Friday revised up its economic forecasts for the whole year and the next year as the economy enjoyed its fastest quarterly growth for 5-½ years in the second quarter.

CNBC.com

Gross domestic product (GDP) grew by an estimated 2.3 percent in the April-June period over the previous quarter on a seasonally adjusted basis after a revised 0.1 percent gain in the January-March quarter, the Bank of Korea said.

If confirmed later, it would mark the fastest quarterly expansion for the economy since the fourth quarter of 2003.

It also upgraded its GDP forecast for all of this year to a 1.6 percent fall from a 2.4 percent drop previously and that for next year to a 3.6 percent rise from a 3.5 percent gain. The previous forecasts were released in April.

"GDP in the second half is expected to recover to the level before the collapse of Lehman Brothers last September," the central bank said in a statement.

Governor Lee Seong-tae already said on Thursday the forecasts were being upgraded mostly due to unexpectedly strong growth in the second quarter and that the outlook for Asia's fourth-largest economy remained uncertain.

The new forecasts came as authorities and global investment banks have been upgrading views on Asia's fourth-largest economy, citing recovering exports and as stimulus measures kick in.

The government now expects the economy to contract by 1.5 percent this year, compared with its previous forecast of a 2.0 percent fall.

The upgrades come amid bets that financial authorities may soon start to tighten policy to prevent asset price bubbles.

The central bank also raised its consumer inflation forecast for this year to 2.9 percent from the previous 2.7 percent.

On Thursday, the Bank of Korea held its benchmark interest rate at a record low of 2.0 percent for a fifth consecutive month and dampened expectations of a rise in rates anytime soon.

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