South Korea's state-run think tank raises GDP, inflation forecasts

SEOUL (Reuters) - South Korea's state-run think tank on Thursday raised its economic growth forecast for this year and said inflation is expected to ease at a slightly slower pace, as it noted the need for gradual easing of monetary policy.

In its biannual economic forecast, the Korea Development Institute (KDI) projected the economy would now grow by 2.6% in 2024 compared to 2.2% before. In 2023, the economy grew at a three-year low of 1.4%.

"Economic growth is expected to be somewhat higher in 2024, but it will be at a level of making up for the sluggish growth in 2023 and a recovery to a neutral level is expected to come in 2025," KDI said.

KDI often conducts research for the government but rarely gives specific policy suggestions. Market participants tend to read policy advice from the think-tank as the views of the finance ministry.

In the first quarter, South Korea's economy grew at the fastest pace in more than two years, beating estimates on strong exports and a pick-up in private consumption.

KDI also said monetary policy needed to be gradually eased from the current restrictive stance to neutral, in line with the pace of inflation converging on the target level, as there was a lower risk of prolonged high inflation while downward pressure on domestic demand mounted.

South Korea's consumer inflation is expected to slow to 2.6% in 2024 from 3.6% in 2023, KDI said, slightly higher from its earlier projection of 2.5%.

(Reporting by Jihoon Lee; Editing by Varun H K)

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