S. Korea's economy to grow 2.7 pct in 2009: OECD

SEOUL, Nov. 25 (Yonhap) -- The Organization for Economic Cooperation and Development (OECD) on Tuesday forecast South Korea's economy will grow 2.7 percent next year, sharply lowering its earlier projection amid growing recession woes worldwide.

South Korea's gross domestic product, however, will rebound to 4.2 percent the
following year as the world's economy is expected to improve, the Paris-based
OECD said in its biannual report on the global economic outlook.
The downgrade comes as major think tanks and research institutes are rushing to
cut their growth outlooks for Asia's fourth-largest economy. On Monday, the
International Monetary Fund trimmed its growth projection for South Korea to 2
percent from an earlier 3.5 percent expansion.
"Korea has been hard-hit by the global financial crisis and the earlier commodity
price shock, which together ended expansion and pushed up inflation," the report
said. "Growth is projected to fall to below 3 percent in 2009 and then pick up
gradually as the world economy improves."
The OECD had predicted that South Korea would grow 5 percent next year in its
previous report issued in June.
The gloomy outlook comes as the South Korean government is struggling to minimize
the impact of the global financial turbulence on its export-driven economy.
The government had unveiled a package of economic stimulus measures, including 14
trillion won (US$9.32 billion) in fiscal spending and tax benefits.
Finance Minister Kang Man-soo recently admitted that it will be tough to achieve
4-percent growth for next year, saying it could fall below the 3-percent range.
"The economic outlook is highly uncertain, given the severity of the shocks to
Korea and the problems facing the world economy," the report said. "A strong
economic rebound is unlikely before 2010."
"Continued world financial turmoil may further worsen the short-term outlook by
undermining the health of Korean financial institutions, resulting in a credit
crunch. There is also a risk that high inflation becomes entrenched, eventually
requiring forceful and costly monetary policy tightening to bring it back within
the target zone," it added.
The OECD forecast that South Korea's consumer prices will ease to 3.5 percent
next year, falling below the upper range of the central bank's target thanks to
"weak growth." This year, prices were expected to jump 5 percent.
Growth in domestic demand, including household spending and corporate investment,
will remain stagnant here, while the employment rate will rise 3.6 percent from
this year's forecast of 3.2 percent, according to the report.
The U.S., Japan and other advanced nations are showing signs of falling into
recessions in the face of protracted financial turmoil sparked by the collapse of
Lehman Brothers in mid-September. Recessions in those countries mean a decreased
demand for South Korean-made goods and services.
The OECD forecast the economic growth of the U.S. will shrink 0.9 percent next
year, while Japan's economy will contract 0.1 percent. The average growth for
OECD countries was predicted to contract 0.4 percent.
"Many OECD economies are in or are on the verge of a protracted recession of a
magnitude not experienced since the early 1980s," the OECD said in the report.
"On the positive side, the large depreciation of the won may lead to a sharper
and earlier-than-expected upturn led by buoyant exports. Moreover, the additional
fiscal stimulus announced in November is likely to have a positive impact on
activity," it added.