S.Korea slashes GDP forecast for 2012 on global uncertainty

SEOUL (Reuters): The South Korean government on Monday slashed its growth forecast for 2012 and said it would spend more than half of its budget in the first half to stem possible negative impacts from the euro zone debt crisis and a slowdown in developed countries.

 The Ministry of Strategy and Finance said Asia's fourth largest economy was expected to grow by 3.7 percent in 2012, down sharply from its initial forecast of 4.5 percent.  It also cut this year's GDP forecast to 3.8 percent, from the 4.5 percent seen in June.

 The 2012 forecast matches the Bank of Korea's revised GDP forecast made last Friday, when it warned of possible further downgrades, and is 0.1 percentage point lower than that of the state-run Korea Development Institute.

 The finance ministry said annual growth would linger in the 1-percent range during the first half of 2012 due to the European debt issues, but would pick up for the rest of the year.  As the ministry sees the economy struggling in the first six months of 2012, it has decided to frontload 60 percent of its budget for next year to fund efforts to support the economy at that time, it said.

 “Policies based on stabilising costs will be implemented in a flexible manner, looking at changes inside and outside South Korea, to heighten economic activity,” the ministry said in a report.  

Annual export growth for 2012 is seen diving to 7.4 percent from nearly 20 percent this year, with global trade losing steam on low demand from the euro zone and the United States, though the ministry expressed hopes exports would get a boost from a free trade agreement with the United States passed in November.

 The ministry also saw annual inflation retreating to 3.2 percent in 2012 on stabilising agricultural product and global raw material prices.

 Household income growth is also expected to decline in 2012,which could exacerbate the country's already elevated household debt burden.

 South Korea's budget bill, which has yet to be approved by parliament, estimates government spending of around 326.1 trillion won ($284.36 billion) next year, according to plans announced in September.