The Bank of Korea on May 27 said in an economic outlook report that the economy will grow 4% this year. (Yonhap News)

By Yoon Hee Young

The Bank of Korea has raised its economic growth forecast this year to 4%.

The central bank on May 27 said in an economic outlook report that it upgraded its projection 1 percentage point from its 3% estimate made in February.

The report added a forecast of 3% for next year, up from 2.5% from three months ago.

The bank said its higher projection was based on improving exports and facility investment thanks to global economic recovery, with improved domestic demand also indicating expansion of domestic economic recovery.

Private consumption is expected to keep improving as sluggishness in household income alleviates amid recovery in consumer sentiment.

The bank's Deputy Governor Lee Hwan-seok said, "Given that growth in this year's first quarter was 1.6%, growth can reach 4% for the year based on simple calculation of growth of 0.7%-0.8% over the remaining quarters."

"Raising the economic growth forecast by one percentage point at one time is uncommon," he added. "In late 2009, a year after the 2008 financial crisis, the projection was raised one percentage point."

This forecast is in line with the bank's "base" scenario, in which vaccination against COVID-19 greatly expands in the second half of the year and the coronavirus's spread gradually eases.

Under a "mild" scenario in which the pandemic eases faster than expected, the report predicted growth of 4.8% this year and 3.6% next year.

Even under the "severe" scenario, the economy was estimated to rise 3.4% this year and 2.4% next year.

Kim Woong, director general of the bank's Research Department, said, "Uncertainty over vaccination has greatly decreased from that in the last forecast," adding, "The outlook also reflects the prospects of the Korea-U.S. vaccine partnership."

hyyoon@korea.kr