SEOUL (Reuters) - South Korea's influential government think tank slashed on Monday its 2012 and 2013 economic growth forecasts, calling for more expansionary policy to counter the impact from the protracted euro zone crisis.
Asia's fourth-largest economy is now seen growing just 2.5 percent this year after a 3.6 percent rise last year, the Korea Development Institute (KDI) said in a report, a sharp cut from 3.6 percent growth forecast in May.
It is lower than the central bank's projection for 3.0 percent growth or the finance ministry's 3.3 percent target. South Korea's economy had expanded by an average of 4.3 percent for the five years before the 2008 global financial crisis.
The KDI said growth for the July-September period would likely edge up to 0.5 percent on a quarter-on-quarter basis from 0.3 percent recorded in the second quarter, but it would be far below a 1.2 percent gain that the think tank saw in May.
The institute also cut its 2013 growth forecast to 3.4 percent from 4.1 percent set in May. It lowered the 2012 inflation forecast to 2.1 percent from 2.6 percent previously, below the Bank of Korea's 3 percent inflation target.
It said the environment was in favor of the Bank of Korea further cutting interest rates after a reduction in the policy rate in July, as well as a moderate increase in government spending next year.
Reporting By Se Young Lee; Editing by Choonsik Yoo and Jacqueline Wong