IMF lowers S. Korea's growth forecast to 2.0 percent for next year

(ATTN: UPDATES with IMF adviser's remarks in paras 12-13)
By Hwang Doo-hyong
WASHINGTON, Nov. 24 (Yonhap) -- The International Monetary Fund Monday
significantly lowered its prediction for South Korea's economic growth rate for
next year to 2.0 percent from its earlier prediction of 3.5 percent, citing the
ongoing global financial crisis adversely affecting domestic spending and
exports.
The lending agency had projected South Korea's growth rate for next year at 3.5
percent in October and 4.3 percent in July.
The figure is just half of the South Korean government's projection of 4 percent
growth for next year, and much lower than projections made by major South Korean
think tanks.
The Korea Development Institute recently put the figure at 3.3 percent, while the
Samsung Economic Research Institute projected 3.6 percent.
In its Regional Economic Outlook (REO) for Asia and Pacific, the IMF maintained
this year's growth forecast for South Korea at 4.1 percent.
The growth forecast for China next year was also cut by 0.8 percentage point to
8.5 percent and that for India was down 0.6 percentage point to 6.3 percent.
Japan was forecast to record a minus 0.2 percent growth next year, down 0.7
percentage point from an earlier projection.
Hong Kong and Singapore's economies will likely grow 2.0 percent next year, down
1.5 and 1.4 percentage points, respectively.
"Growth in Asia is expected to slow substantially along with the rest of the
world, as exports weaken and spillovers from the global financial turmoil weigh
on domestic activity," the report said.
"Despite Asia's generally strong fundamentals, including its substantial cushion
in official reserves, improved macroeconomic policy frameworks and generally
robust corporate balance sheets and banking systems, the region is being rattled
by the crisis due to its close trade and financial integration with the rest of
the world, and any hope that the region would escape the crisis unscathed has by
now evaporated," it said.
The IMF said Asia's economy will likely begin picking up in the second half of
next year on condition that Asian policymakers take "quick and decisive actions"
such as easing monetary policy and pursuing economic stimulus measures to respond
to heightened financial risks and slowing domestic activity.
Jerald Schiff, senior adviser for Asia and Pacific Department of the IMF, singled
out South Korea as an example for a country that can employ more fiscal spending
to prop up its struggling economy.
"I think that there are a number of countries in Asia where fiscal stimulus is
feasible and probably desirable," he told a news conference convened to announce
the REO report. "Several countries have already announced fiscal stimulus
packages, for example, Korea. And many countries in the region have pretty low
deficits and debt."
Despite the recent downturn, the IMF expected commodity prices to "remain high
and volatile over the medium term, which would tend to create persistent gaps
between core and headline inflation and pose new challenges for policymakers in
facing trade-offs between output and inflation volatility."
In this context, the lending agency called for Asian countries to take "a careful
consideration of monetary policy frameworks, in particular in commodity-importing
countries."
The gloomy outlook comes on the heels of concerns that the US$700 billion bailout
package for the struggling U.S. financial industry will not be enough to quell
the bursting of the subprime mortgage market and ensuing financial turmoil in the
U.S. spilling over to Asia and Europe.
Critics say the biggest U.S. government intervention since the Great Depression
in the 1930s will not solve the problem caused by the asset bubble unless housing
prices stop their downward trend.
They argue the package will raise the U.S. government's deficit to $11.3 trillion
and undermine the credibility of the world's biggest economy.
Financial turmoil in the U.S. has dampened domestic spending in the U.S. as well
as other countries, significantly contracting shipments from Asian economies.
Asian governments are struggling to cut key interest rates, increase fiscal
spending and guarantee bank deposits and provide liquidity to help their
financial institutions.
Skeptical investors, however, continue to dump stocks and banks across Asia are
refraining from lending money to secure their cash flow to aggravate the credit
crunch.
hdh@yna.co.kr
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