South Korea's economy will grow
just 0.7 percent this year, the slowest since the Asian financial
crisis a decade ago, hit by the deepening global downturn, the
country's top government research agency said on Wednesday.
The Korea Development Institute's (KDI) latest forecast, the
lowest among the big government agencies, was a sharp downgrade
from its previous projection for 3.3 percent growth set in
November and stood below the central bank's 2 percent growth
forecast made in December.
Separate data showed exports shrank about 30 percent in the
first 20 days of January, more evidence that the worldwide
downturn is battering the country.
The forecast and the export indicator deepened fears Asia's
fourth-largest economy was heading for its first contraction
since the 1997/98 Asian financial crisis, analysts said.
"The KDI's figures seem too optimistic as the economy
definitely appeared to contract in the fourth quarter, and given
other economic data," said Park Sang-hyun, chief economist at HI
Investment & Securities.
"Stimulus packages at home and abroad may take effect from
the second half, but they are expected to be a just short-term
pain killer, not a fundamental solution," he added.
A rising number of private-sector experts expect South
Korea's economy to contract by as much as 3 percent this year,
with ratings agency Standard & Poor's on Wednesday setting its
growth forecast at zero.
The government has introduced fiscal stimulus and tax cuts
worth around a combined $100 billion, some 15 percent of the
country's annual gross domestic product. The central bank has
also cut the policy interest rate to a record-low 2.5 percent
from 5.25 percent where it was at the beginning of October. For a
chronology of South Korean rate.
The Bank of Korea is expected to lower rates further,
probably to as low as 1.5 percent in the first quarter, and it
may cut them more in the second half, analysts said.
After the KDI forecasts, the March treasury bond futures rose as much as 30 ticks.
"The economy is seen entering a recession phase on weaker
domestic demand and as the impact of a sharp slowdown in the
global economy bites into exports," the KDI said in a statement.
JOBS AT RISK
The slowing economy, along with corporate restructuring, is
expected to hit the job market hard as the economy needs to grow
about 5 percent to prevent further job loss, economists said.
"The employment environment will get much worse until next
year as job markets usually lag the overall economy. We may see a
jobs recovery in 2011 at the earliest," said Oh Suk-tae, an
economist at Citigroup.
South Korea's economy was estimated to grow 3.7 percent in
2008, the central bank said in December, after expanding an
average of 4.4 percent a year between 1998 and 2007.
The economy has expanded for the past 10 successive years
after shrinking a some 7 percent in 1998 in the aftermath of the
Asian financial crisis, which had pushed the country to the brink
of economic collapse.
Underscoring the impact of global recession in Asia,
Singapore's government slashed its economic growth forecast for
2009 to as low as minus 5 percent on Wednesday from the previous
projection for as low as minus 2 percent.
The KDI's revised forecasts came a day before the Bank of
Korea is due to release its first official GDP growth estimate
for the fourth quarter of 2008 on Thursday.
Economists polled by Reuters estimated South Korea's GDP to
have contracted a seasonally adjusted 2.7 percent in the
October-December period from the third quarter, which would mark
the biggest quarterly loss since early 1998.
($1=1373.4 Won)
