The Bank of Korea (BOK), which earlier today left its policy rate steady at 2.75 percent, trimmed its forecast for growth this year to 2.6 percent from a previous forecast of 2.8 percent due to lower-than-expected growth in the third and fourth quarters of last year and slightly lower assumptions for world economic growth and trade.
Growth in South Korea's Gross Domestic Product this year is forecast at 1.8 percent in the first half, with investments in facilities contracting, but growth then rising in the second half to 3.3 percent as facilities investment picks up speed along with exports and consumption.
For 2014 the economy is forecast to expand by 3.8 percent, the same rate as South Korea's central bank forecast in its January forecast.
In 2012 the economy grew by 2.0 percent, down from 3.6 percent in 2011.
The 2013 growth forecast is growth is higher than South Korea's finance ministry which recently cut its forecast to 2.3 percent from a previous forecast of 3.0 percent.
"In terms of the future growth path, there are both upside risks - due to stronger growth in major economies including the U.S. and Japan and a possible acceleration of economic recovery driven by the supplementary budget - and downside risks - from the delayed recovery in the eurozone and the growing uncertainties concerning the value of the yen - but the risks are appraised as neutral overall," the BOK's staff said.
The risks to inflation are also balanced, with upside risks from sluggish agricultural production from bad weather and downside risks from lower oil prices, the bank said.
The central bank forecast a headline inflation rate of 2.3 percent this year, down from a previous forecast of 2.5 percent due to lower agricultural prices, and an unchanged 2.8 percent in 2014. at an unchanged 3.8 percent.
The BOK targets inflation in a range of between 2.5 and 3.5 percent.