ID :
31798
Sun, 11/23/2008 - 08:15
Auther :
Shortlink :
https://oananews.org//node/31798
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(News Focus) Growth outlook for S. Korea darkens on deepening recession woes
By Koh Byung-joon
SEOUL, Nov. 23 (Yonhap) -- With jitters over a global economic recession spreading, major financial institutes are rushing to cut their 2009 growth projections for South Korea, with one foreign investment bank predicting a contraction, raising questions about the fundamentals of the export-focused economy.
Even the government has admitted that its earlier 4-percent growth target will be
tough to achieve, predicting growth could fall below 3 percent if current
conditions continue.
On Friday, the Switzerland-based UBS AG forecast that Korea's economy will
contract 3 percent next year, revising its earlier prediction of a 1.1 percent
advance. This marked the worst outlook for South Korea by foreign investment
banks.
"UBS's prediction of a recession might be based on the worst case scenario in
which almost every aspect of the economy is feared to go from bad to worse," said
Lee Seong kwon, an economist at Goodmorning Shinhan Securities. "But such a
gloomy outlook shows the pessimistic view foreigners have of South Korea's
economic fundamentals."
The revision is the latest cut in growth projections by major think tanks and
investment banks, most of which are predicting an around 3 percent advance due to
the latest financial woes and their detrimental impact on the real part of the
Asian economy.
The International Monetary Fund recently lowered its 2009 growth outlook for
South Korea to 3.5 percent from its previous prediction of a 4.1 percent
expansion. It is reportedly considering a further downward revision.
The state-run Korea Development Institute trimmed its growth projection for South
Korea to 3.3 percent from 4.2 percent, while leading private think tank Samsung
Economic Research Institute cut its 4.4 percent projection to 3.6 percent.
In a recent parliamentary session, Finance Minister Kang Man-soo said that growth
could fall below 3 percent. South Korea's economy grew 5 percent last year and is
expected to expand 4.3 percent this year.
"Despite the different projection figures ranging from plus to minus, one
underlining truth is that South Korea's economy will suffer more challenges next
year than it did in past months as it could fall victim to the global economic
recession," Lee added.
Slumping domestic demand has been a key downside risk over the past several
months for the local economy as consumers and companies cut back on spending and
investment.
According to government data, the nation's inflation-adjusted household spending
contracted 2.4 percent in the third quarter of this year, the lowest since 2003
when related data started to be compiled.
The Bank of Korea, the central bank, slashed its key interest rate from 5.25
percent to 4 percent in less than a month in a bid to stimulate spending. It has
also left open the possibility of a further rate reduction.
South Korea's government announced a raft of measures, including a 14-trillion
won economic stimulus package and sweeping tax cuts. It remains to be seen
whether those measures will lead to an increase in domestic demand, which
accounted for half of the nation's gross domestic product, observers say.
A new challenge, however, is slowing export growth amid weakening overseas demand
from major economic powers, including the U.S., Japan and the European Union.
"The minus growth projections for major advanced nations is the first of its kind
since the end of the second World War and the severity of the economic downturn
alone is no less than the one during the first and second oil shocks," Hyun
Jung-taik, head of the KDI, said in a recent forum.
"Oil producers, advanced nations and developing countries are all suffering
difficulties. The present situation could be worse than those days," Hyun noted.
Global recession woes are hitting South Korea's exports hard. According to
preliminary government data, South Korea's exports plunged 14.3 percent to
US$17.63 billion during the first 20 days of this month from a year earlier.
Experts say that chances are 'slim' that the nation's economic growth will
contract but noted that the minus growth forecast by UBS underlines 'deepening'
worries over the fundamentals of the local economy, which depends heavily on
overseas demand.
Government officials brushed off the possibility of the nation going into minus
growth next year but admitted that conditions are getting worse by the day,
making it tougher for them to achieve their current growth target.
"After we set the 4-percent growth target, the IMF sharply lowered its growth
outlook for the world economy and is expected to cut it further sooner or later,"
a finance ministry official said on condition of anonymity.
"If we reflect the adjustment only, it would be a foregone conclusion that growth
will fall short of the target," he added.
According to the Finance Ministry, one percentage point decline in global growth
usually translates into a 0.8 percentage point cut in the gross domestic product
of the South Korean economy.
SEOUL, Nov. 23 (Yonhap) -- With jitters over a global economic recession spreading, major financial institutes are rushing to cut their 2009 growth projections for South Korea, with one foreign investment bank predicting a contraction, raising questions about the fundamentals of the export-focused economy.
Even the government has admitted that its earlier 4-percent growth target will be
tough to achieve, predicting growth could fall below 3 percent if current
conditions continue.
On Friday, the Switzerland-based UBS AG forecast that Korea's economy will
contract 3 percent next year, revising its earlier prediction of a 1.1 percent
advance. This marked the worst outlook for South Korea by foreign investment
banks.
"UBS's prediction of a recession might be based on the worst case scenario in
which almost every aspect of the economy is feared to go from bad to worse," said
Lee Seong kwon, an economist at Goodmorning Shinhan Securities. "But such a
gloomy outlook shows the pessimistic view foreigners have of South Korea's
economic fundamentals."
The revision is the latest cut in growth projections by major think tanks and
investment banks, most of which are predicting an around 3 percent advance due to
the latest financial woes and their detrimental impact on the real part of the
Asian economy.
The International Monetary Fund recently lowered its 2009 growth outlook for
South Korea to 3.5 percent from its previous prediction of a 4.1 percent
expansion. It is reportedly considering a further downward revision.
The state-run Korea Development Institute trimmed its growth projection for South
Korea to 3.3 percent from 4.2 percent, while leading private think tank Samsung
Economic Research Institute cut its 4.4 percent projection to 3.6 percent.
In a recent parliamentary session, Finance Minister Kang Man-soo said that growth
could fall below 3 percent. South Korea's economy grew 5 percent last year and is
expected to expand 4.3 percent this year.
"Despite the different projection figures ranging from plus to minus, one
underlining truth is that South Korea's economy will suffer more challenges next
year than it did in past months as it could fall victim to the global economic
recession," Lee added.
Slumping domestic demand has been a key downside risk over the past several
months for the local economy as consumers and companies cut back on spending and
investment.
According to government data, the nation's inflation-adjusted household spending
contracted 2.4 percent in the third quarter of this year, the lowest since 2003
when related data started to be compiled.
The Bank of Korea, the central bank, slashed its key interest rate from 5.25
percent to 4 percent in less than a month in a bid to stimulate spending. It has
also left open the possibility of a further rate reduction.
South Korea's government announced a raft of measures, including a 14-trillion
won economic stimulus package and sweeping tax cuts. It remains to be seen
whether those measures will lead to an increase in domestic demand, which
accounted for half of the nation's gross domestic product, observers say.
A new challenge, however, is slowing export growth amid weakening overseas demand
from major economic powers, including the U.S., Japan and the European Union.
"The minus growth projections for major advanced nations is the first of its kind
since the end of the second World War and the severity of the economic downturn
alone is no less than the one during the first and second oil shocks," Hyun
Jung-taik, head of the KDI, said in a recent forum.
"Oil producers, advanced nations and developing countries are all suffering
difficulties. The present situation could be worse than those days," Hyun noted.
Global recession woes are hitting South Korea's exports hard. According to
preliminary government data, South Korea's exports plunged 14.3 percent to
US$17.63 billion during the first 20 days of this month from a year earlier.
Experts say that chances are 'slim' that the nation's economic growth will
contract but noted that the minus growth forecast by UBS underlines 'deepening'
worries over the fundamentals of the local economy, which depends heavily on
overseas demand.
Government officials brushed off the possibility of the nation going into minus
growth next year but admitted that conditions are getting worse by the day,
making it tougher for them to achieve their current growth target.
"After we set the 4-percent growth target, the IMF sharply lowered its growth
outlook for the world economy and is expected to cut it further sooner or later,"
a finance ministry official said on condition of anonymity.
"If we reflect the adjustment only, it would be a foregone conclusion that growth
will fall short of the target," he added.
According to the Finance Ministry, one percentage point decline in global growth
usually translates into a 0.8 percentage point cut in the gross domestic product
of the South Korean economy.
