SEOUL, Dec. 31 (UPI) -- It has been a pretty good year for the South Korean economy and financial markets. Despite geopolitical risks due to North Korea's nuclear ambitions and a drag over the war in Iraq, the country's exports boomed and stocks soured, and its new president pushed for economic reforms.

This year's growth rate is estimated at 2.7 percent because of sluggish domestic consumption and investment, but forecasters believe things are falling into place to produce more solid growth in 2004. The consensus forecast of next year's growth is 5 percent.

Consumer spending will be bolstered by tax reduction, increased government expenditure and other stimulus measures. The central Bank of Korea plans to maintain the current low interest rate policy for the time being to spur domestic consumption.

Businesses are finally beginning to invest in new plants and equipment and hiring more workers. Samsung Group, the country's largest conglomerate, plans to spend 15.5 trillion won ($13 billion) in facility and research and development investment in 2004, up 17 percent from this year. Other conglomerates also promised to increase capital investment.

Parliament on Tuesday approved a 118.3-trillion-won ($99 billion) budget for 2004, around 800 billion won ($67 million) bigger than an original government proposal after calls from the government to raise expenditure to support the fledgling economic recovery. The Ministry of Planning and Budget, which requested the budget increase, says it will seek additional funds in the future to boost economic growth.

According to survey released on Wednesday, the country's economic recovery is expected to pick up in the first quarter of next year, backed by strong growth in semiconductors, shipbuilding and car-making, A poll of 800 companies revealed that the business survey index measuring the outlook for the first quarter of 2004 averaged 113, up 8 points from 105 the previous quarter.

"No doubt, things would be better next year," said Jung Moon-kun, vice president of the Samsung Economic Research Institute, a leading private think tank. "The economy is expected to grow around 5 percent in 2004 thanks to robust exports of information technology products," he said.

That should be welcome news for President Roh Moo-hyun who faces voters in general elections in April that could determine the fate of his reform crusade.

Roh, who took office last February on a government-led reform and anti-corruption platform, has suffered decreasing approval ratings throughout the year largely because of the protracted economic slump and his own policy flip-flops.

Many reform-minded analysts accuse Roh of failing to meet his pledge to overhaul big conglomerates, or chaebol, whose collusion with the political circles has caused a series of corruption scandals. Kim Sang-jo, a professor at Hansung University calls Roh's economic policies "totally disappointing."

Economists say exports will play a leading role in next year's economic growth, but warned it may lose steam unless depressed domestic consumption recovers in the near future.

"Exports are expected to continue their solid growth next year thanks to a recovery in the global economy and the booming Chinese market," said Oh Moon-suk, a senior economist at LG Economic Research Institute.

Strong exports have offset lackluster domestic consumption this year. According to the Korea International Trade Association, South Korea's exports grew at the third-highest rate among major Asian economies during the first 11 months of the year. Exports increased 18.3 percent during the period, behind only China's 32.9 percent and Hong Kong's 18.6 percent gains.

Thanks to brisk exports, the country's current account surplus reached $2.95 billion in November, the highest level in nearly five years. "Exports are expected to set new monthly record in December. The government projects exports of about $20 billion dollars," said Cho Sung-jong, a director general at the central Bank of Korea.

Bolstered by a recovery in the global IT business, stabilization of the South Korean currency, a continued boom in the Chinese economy, the country's exports are forecast to surge to 22.9 billion won ($19 million) in the first quarter of next year, up 4.2 per cent from the previous quarter.

Encouraged by the strong exports, foreign investors have rushed to the South Korean stock markets, boosting their indexes. The benchmark Korea Composite Stock Price Index rose 23 percent this year.

"The net buying spree by foreigners, who saw our market as undervalued with comparatively good fundamentals, propelled the index upward," said Kim Yu-kyung, a senior researcher at the Korea Stock Exchange.

Foreign investors had net purchased more than 13 trillion won ($10.8 billion) in South Korean shares in the main stick exchanges, a sharp turnaround from net sales of 2.9 trillion won ($2.4 billion) last year. Overseas investors owned a record 40.1 percent, worth 133 trillion won ($111 billion), a KSE report says. Analysts forecast further buying spree by foreigners next year.

But private consumption and corporate investment are still mired in a slump due to weak consumer and corporate sentiment. Industrial output growth in November slowed to 4.7 percent compared with a year earlier from the 7.4 percent rate recorded in October, due to serious falls in domestic consumption and investment.

Companies remained reluctant to expand spending despite a continued boom in exports, with estimated capital spending falling 8.1 percent in November from a year earlier, a fifth straight monthly drop year-on-year, the National Statistical Office said in a report released this week.

NSO officials say the figures suggest the economy hit bottom in the third quarter but that the recovery is weak due to faltering capital spending and consumption.

Lee Jong-hoon, a professor at Chung-Ang University, says South Korea should seek economic engines to boost consumption and investment and sustain solid economic growth. "The country is urged to place its top priority on information technology and knowledge-based services as a future growth engine," he said.