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Many economists forecast the country's economic growth to come at a 3 percent level in the second half, which would cut the growth rate for the whole year to just over 4 percent, far below new President Lee Myung-bak's much-touted target of 7 percent.
The central Bank of Korea has recently revised its projection of local economic growth to mid-4 percent for this year, according to bank officials on Wednesday.
The report, which will be announced early next month, means that the growth rate could fall to a 3 percent level in the second half, given the first-half rate is estimated at around 5 percent, the officials said.
The country's economy, which grew 5.8 percent in the first quarter year-on-year, is projected to expand higher than 4.5 percent in the second quarter, despite a week-long strike by truckers that paralyzed the country's ports and freight shipments, damaging the country’s export-driven economy.
Late last year, the bank projected the South Korean economy to advance 4.7 percent in 2008, but it was made on the assumption that the crude import price would not go up over US$81 a barrel. But the average price of crude imports stood at $98.1 a barrel last month, posing a huge burden on the country's energy-intensive manufacturers.
Citing the soaring fuel import costs, Bank of Korea Governor Lee Seong-tae said the South Korean economy may grow 4.5 percent or below this year, compared with 5.0 percent in 2007. The economy expanded 5.1 percent in 2006, 4.2 percent in 2005 and 4.7 percent in 2004, following a 3.1 percent gain in 2003.
The International Monetary Fund painted a gloomier picture of the South Korean economy on Wednesday, saying it would expand only 4.1 percent this year, lower than the organization's earlier projection of 4.2 percent.
Still worse, the IMF expected the local economy to keep sliding in the second half with a 3.6 percent growth in the third quarter and a 2.6 percent expansion in the fourth quarter.
"Korea's economy is facing challenging global circumstances," Jerald Schiff, assistant director of the IMF's Asia and Pacific Department, told reporters in Seoul. "High global food and fuel prices are expected to weigh on consumption and are contributing to rapidly rising prices," he said.
The IMF's 4.1 percent projection for South Korea is the latest in a series of downgrades by think tanks and investment banks at home and abroad in the face of worsening economic conditions.
The Organization for Economic Cooperation and Development has already slashed its growth projection for South Korea from 5.2 percent to 4.3 percent.
South Korea's top private think tank, Samsung Economic Research Institute, lowered its projection from 5 percent to 4.7 percent, while its main rival LG Economic Research Institute lowered it to 4.9 percent.
The SERI has warned the local economy would lose its growth momentum sharply in the second half. "The economy will slow down more sharply than expected in the second half," said SERI director Kwon Soon-woo.
Amid the growing warnings, Vice Finance Minister Bae Kook-hwan acknowledged that the economic growth would fall to a 4 percent level this year. "The world economy is in a difficult situation after 10 years of robust growth and international institutions forecast it will be after the second half of next year when the U.S. economy starts to recover," Bae said.
"It means our economy will have difficulty in the second half of this year and early next year," he said. "The government expects the growth rate for all of this year at an upper 4 percent level."
It was the first time for a senior South Korean official to project the economy to grow under 5 percent in 2008, lower than the government revised target of 6 percent from 7 percent.
President Lee, a former business executive, has still expressed confidence that he could revitalize the slumping economy, but many economists remain skeptical.
"The government has recently placed priority on taming inflation, but interest rate hikes could dampen domestic consumption and corporate investment, which would further hurt the economic growth," said Jon Min-kyu, an analyst at Korea Investment and Securities.
Jon and other analysts say the government has no effective tools to shield the world's 13th-largest economy from external shocks, such as oil price hikes and a global economic slowdown.
