Korea's growth potential stays at level predicted before crisis: report

SEOUL, May 19 (Yonhap) -- South Korea's potential growth rate remains at the level predicted before the global financial crisis as the turbulence has had a "limited" impact on the nation's fundamentals, a state-run think tank said Thursday. South Korea's potential growth rate -- the maximum rate of economic growth without causing inflation -- currently stands at about 4.3 percent, the level predicted before the financial turbulence hit the world in late 2007, according to a report by the Korea Development Institute. South Korea's economy was hit hard by the global financial crisis but it was able to withstand the shock as the turbulence did not lead to a meltdown in its own financial markets, the think tank said. Unlike other major economies whose potential growth rates must have been affected in the wake of the crisis, South Korea was spared as it has maintained soundness in the domestic financial sector, it added. "The crisis that we faced this time was prompted by external shocks, not by internal structural problems," the report said. "Maintaining soundness in the financial sector seemed to have helped offset the negative impact of the crisis on our country's potential growth rates." The report forecast that South Korea's economy will grow around 4.3 percent in 2011-12, staying in the range of the nation's potential growth rates. The forecast is, however, lower than the government's projection of a 5 percent gain. The report still cautioned against the government's pursuit of growth surpassing the potential rates for a long time, saying that it could cause inflation and hurt the nation's fiscal soundness. It also cited the nation's aging population as a factor that could weigh on economic growth, stressing that the government needs to continue its efforts for regulatory reforms, technology renovation and other methods aimed at strengthening the potential growth rates down the road.