South Korea cuts growth forecast for 2012 and 2013

South Korea has decided to cut its growth forecast for this year and for 2013, underlining the effect of a slowdown in its key export markets on its growth.

The finance ministry has forecast a growth of 3% for 2013, down from its earlier projection of 4.3%.

Meanwhile, the growth forecast for 2012 was lowered to 2.1% from 3.3%.

South Korea’s exports, which account for almost half of its overall economy, have been hit by slowing demand from markets such as the US and eurozone.

“Growth next year will be better than this year, although there are significant downside risks,” said the finance ministry’s Choi Sang-mok.

“Nevertheless, the strength of the recovery won’t be strong enough for the economy to catch up to its potential growth rate.”

The sovereign debt crisis in the eurozone has hurt demand for South Korean exports from the region.

Meanwhile, the economic recovery in the US – another key market for its exports – has also remained fragile and consumer demand there has not picked up drastically.

The slowdown in demand for exports has hurt growth in Asia’s fourth largest economy.

South Korea’s economy grew at its slowest pace in three years in the July to September quarter, expanding at an annual rate of 1.6%.

Prompted by slowing demand for exports, policymakers have taken some steps to try and spur domestic consumption.

In September it announced a $5.2 billion stimulus package, which included tax breaks on personal incomes and purchases of homes and cars.

The Bank of Korea has also cut interest rates twice in the past few months to try and ease the burden of businesses and households.

On Thursday, the central bank said it would continue to take measures to spur growth to ensure the economy’s “growth potential is not eroded due to its continued low growth”.