Think tank cuts S. Korea growth forecasts below 4%

SEOUL—South Korea’s main think tank lowered its forecasts for the country’s economic growth on Sunday, citing slowing demand from the West and a strong currency that is holding back exports.

The state-run Korea Development Institute (KDI) said in its twice-yearly report that Asia’s fourth-largest economy would grow by 3.6 percent in 2011, compared with its May estimate of 4.2 percent.

It said it now expected 3.8 percent growth in 2012, down from 4.3 predicted in May.

“Amid the global downturn, the uncertainty surrounding the domestic economy’s growth path has increased,” the KDI said in a statement, adding the slowdown would continue “at least until the first half of next year.”

“Export growth will slow, while local demand is expected to eke out a modest gain, supporting the overall economy,” it said.

The downgrade followed similar revisions by many private researchers and global institutions, which have cut growth forecasts to below 4 percent and called Seoul’s official projection of 4.5 percent growth in 2012 unrealistic.

The KDI also forecast that the country’s current-account surplus would shrink to $15.1 billion in 2012 from an estimated $21.3 billion this year, due to lingering uncertainty in major economies and the won’s steady strengthening against the dollar.

But the institute said that if South Korea’s free-trade deal with the United States takes effect early next year as planned, it would help raise the South’s growth rate to between 3.9 and 4.1 percent in 2012.

The US Congress approved a free trade agreement with South Korea in October, but Seoul has faced problems gaining domestic approval for the deal, with the main opposition party demanding changes.

The ruling Grand National Party (GNP) is seeking quick ratification of the long-delayed deal but is reluctant to ram the bill through for fear of a voter backlash before next year’s general and presidential elections.—Dow Jones Newswires contributed to this report