Third quarter growth rate seen to be higher than that of second

The growth rate of the Korean economy during the third quarter of the year is forecast to exceed the 6.3 percent posted in the second quarter, an official of the Ministry of Finance and Economy said yesterday.

The official noted that exports recovered strongly in the three months to August, while domestic demand continued to grow, albeit at a slower rate.

"We cannot find factors that would cause the third quarter growth rate to drop below the second quarter level," he said.

"The construction industry may experience a slight drop in business activity but it will be boosted by the supplementary budget amounting to 4.1 trillion won," he added.

Exports, which posted a double-digit growth rate for the three consecutive months, were seen to maintain a high growth trend until the end of the year.

The current account balance, despite the snowballing deficit in the travel account, is expected to register an annual surplus of more than $5 billion thanks to growing trade surplus.

Consumer prices, which have been on an upward curve due to flood damages, the won's depreciation against the U.S. dollar and the likelihood of U.S.-Iraq war, are expected to be reined in below an annual increase of 3 percent, the official said.

As a result the growth rate for the second half of the year is expected to be not much lower than the 6.1 percent posted in the first half, enabling the government to attain its goal of raising the annual growth rate to the 6 percent range.

The ministry played down the impact of the recent stock market crash, saying that the overall economy will not be affected much because disposable income of households has been increasing as a result of the steady rise in real income, which directly affects consumption, and the low unemployment rate being maintained at the 2 percent level.

The ministry, however, said if the stock market depression is protracted, it will dampen consumer sentiment.

Given the uncertainties in the external environment, including the possible U.S.-Iraq war, the government will have to maintain the current macroeconomic policy mix biased toward stimulating the economy.

"Due to the growing uncertainties in the external environment, it is difficult to change the direction of the macroeconomic policy," the official said.