The Bank of Korea declined to raise interest rates this week but cut its forecast for 2011 economic growth. The central bank said that South Korea’s gross domestic product would grow 4.3 percent this year, down from the 4.5 percent predicted in April. The economy is forecast to expand by 5.2 percent in the fourth quarter, following a third-quarter expansion of 4.2 percent and a 3.5 percent increase in the second quarter.

The decision to hold steady on interest rates reflects the central bank’s concerns about the brewing sovereign debt crisis in Europe. However inflation remains a thorny issue for the country and analysts believe the central bank will eventually have to hike rates. The Bank of Korea estimated that consumer prices would rise 4 percent this year, up from the previous forecast of 3.9 percent. The central bank said inflation would slow to 3.5 percent in the fourth quarter after rising by 4.2 percent in the second and third quarters.

The central bank struck a cautious note in regards to the country’s economic prospects this year.

“In terms of the upside and downside risks to growth, the downside predominates given for instance the possibility of sovereign debt problems in the euro area spreading, and the likelihood of the paces of recovery in the US and other major countries slowing,” the central bank said.

President Obama will soon send a contentious free trade pact with South Korea to Congress for approval, according to White House officials. Republican members of Congress have objected to White House demands that the Trade Adjustment Assistance (TAA) retraining program be passed along with the South Korean trade agreement. The TAA augments health and unemployment benefits for workers who have lost their jobs due to foreign competition. The White House believes the trade agreement with Korea could “create or support” 70,000 US jobs. The deal could boost US exports to by USD10.9 billion. 

The Malaysian Institute of Economic Research said inflation would peak at 3.8 percent in June and moderate to 3.5 percent in the second half of the year. Inflation is forecast to come in at 3.3 percent in 2012. The institute estimates that Malaysia’s gross domestic product growth would be unchanged in 2011 at 5.2 percent.

Foreign direct investment (FDI) in China rose 18.4 percent year over year in the first half of the year, more evidence that China’s economy remains robust. Foreign firms invested USD60.9 billion in factories and other projects in the first six months of the year, compared to USD51.4 billion the previous year. China attracted USD12.9 billion in FDI in June alone. However, US investment in China fell 22.3 percent to USD1.7 billion. Analysts said this investment was driven by confidence in China’s growth prospects and expectations that the renminbi will appreciate. However, some cautioned that FDI numbers are volatile and influenced by outside factors unrelated to China, making them a poor gauge of the country’s economic health.

The Boston Consulting Group estimates that China’s fashion market will triple in size to RMB1.3 trillion (USD201.3 billion) over the next 10 years. China’s fashion market is dominated by sportswear and local casual clothing brands and was worth about RMB400 billion (USD62 billion) in 2010. However, a rising generation of middle-class consumers will fuel growth in this market for years to come; China will account for 30 percent of the global fashion market’s growth over the next five years. China’s retail market is fragmented and presents many firms with daunting logistical challenges. Boston Consulting Group estimates that by 2020 a company would need to have a presence in 568 Chinese cities to reach 80 percent of the mid- to high-end fashion market.