Global recession weighs on export-driven S. Korean economy: report

(ATTN: ADDS gov't prediction of November current account surplus at bottom)
SEOUL, Dec. 4 (Yonhap) -- With fears over a worldwide recession growing, South
Korea currently faces increasing "downside risks" for its export-driven economy,
a government report said Thursday.
"Despite easing inflationary pressures, South Korea faces increased downside
risks such as contraction of production, domestic demand and exports," the
Finance Ministry said in its monthly report analyzing economic trends.
"As the fallout from the global financial instability is spilling over into the
real parts of the economy worldwide, the nation's exports are shrinking sharply
among other things, with the overall contraction picking up pace," it added.
The estimate provides a snapshot of South Korea's economy, which has been gripped
by the global financial turbulence tipped off in the U.S. in September when major
investment banks collapsed.
Government policymakers have rushed to stabilize the nation's hard-hit financial
system and help cash-strapped banks and exporters by pumping dollars into the
market.
The report showed that both consumption and employment are in the doldrums, as
households and companies tighten their belts and brace for the worst.
Sales of consumer goods in October fell 3.7 percent from a year earlier mainly
due to reduced spending on gasoline and clothes. The drop is sharper than the
previous month when sales declined 1.8 percent, according to the report.
Job creation also slumped to a 44-month low as companies remained reluctant to
hire workers amid a bleak economic outlook. The economy generated a mere 97,000
new jobs in October compared with a year earlier, the smallest since February
2005.
Exports, the backbone of the nation's economy, also saw sharp declines in growth.
The report showed that the nation's November exports plunged 18.3 percent from a
year earlier, the steepest fall since February 2002 when they declined 20.4
percent.
With weakening domestic demand and exports, industrial production contracted 2.4
percent in November from a year earlier, a turnaround from a 6.2 percent advance
in the previous month.
According to the Bank of Korea (BOK), the central bank, the nation's gross
domestic product expanded 0.5 percent in the third quarter from three months
earlier, the slowest rate in four years.
To revive the economy, the BOK has cut its key interest rate by 125 basis points
to 4 percent since early October. It will meet to review its monetary polices on
Dec. 11, with experts forecasting a further reduction in borrowing costs.
"The government needs to step up efforts to head off instability in the nation's
foreign exchange market and its overall financial system, while pushing to create
more jobs and other measures aimed at stimulating the nation's real economy," the
report said.
Meanwhile, the Finance Ministry raised its projection for the November current
account surplus to US$2 billion from the previous forecast of $1 billion,
reflecting the latest export and import figures. On Monday, South Korea said that
it posted a trade surplus of $297 million last month.
kokobj@yna.co.kr
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