Minister sees strong Korean growth

staff and wire reports

Korea's economy had short-term boosts this year from the soccer World Cup and the Asian Games

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SEOUL, South Korea -- South Korea may see its economy grow 6 percent next year, according to the country's finance minister.

That would outdo even private forecasts of a 5 percent hike in gross domestic product.

"About six percent GDP growth is possible in 2003," Jeon Yun-churl told a group of leading female managers.

"There are some concerns that a possible war between the United States and Iraq could affect the economy next year. But we can counter the effects of such external factors through macroeconomic policies," he said, according to Reuters news agency.

Korea is already Asia's best-performing industrialized economy and lagging only developing countries such as China. While most of the rest of Asia battles its way out of recession, the concern in Korea is about overheating and inflation.

Jeon said household borrowing in Korea would exceed 400 trillion won ($327.3 billion) at the end of this year, a mounting concern. Kookmin Bank on Friday posted a surprise fall in profit due to rising consumer defaults. (Full story)

Debt a mounting concern

Korean GDP rose 3.0 percent in 2001, with the central Bank of Korea predicting 6.5 percent growth in 2002. But weak demand from the United States and other external factors had been expected to stem growth to around 5 percent in 2003.

Korea, Asia's fourth largest economy, is a major oil importer and would be severely affected by a war in the Middle East. Those concerns eased somewhat this week with a sudden fall in oil prices, with any U.S. action in Iraq likely delayed.

For now, a rising tide of consumer borrowing is posing the greatest threat to domestic demand. Korea's top bank watchdog said earlier this month it would order banks to increase provisions against household lending, with defaults mounting.

Credit card defaults rose 3.1 percent in September over the last quarter, to 2.46 million at the end of the month, the Korea Federation of Banks reported last week.

Jeon said household lending was estimated at 370 to 380 trillion won at the end of June. Increased use of credit cards and more mortgage loans, driven by low interest rates, are driving the growth in borrowing.

Korean interest rates hit an all-time low in May and stand just 0.25 percent off that at 4.25 percent since May, with the Bank of Korea concerned about a possible downturn in Korea's growth.

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