S. Korea must enact more stimulus measures for 2009, experts say

SEOUL, Dec. 11 (Yonhap) -- South Korea's government should swiftly craft more
economic stimulus packages for next year to prevent the nation's economy from
sinking into a recession for the first time in a decade, experts said Thursday.
Hit by the worldwide recession, South Korea's economy has been in dire straits,
with exports rapidly sliding and growth in corporate investment and domestic
consumption coming to a standstill.
Analysts have presented mixed outlooks, with some foreign investment banks
predicting the economy will contract next year. The International Monetary Fund
recently forecast that South Korea's economy may grow two percent next year, a
sharp reversal from a five percent expansion in 2007.
The government of President Lee Myung-bak has unveiled 36.5 trillion won (US$27.6
billion), or 3.8 percent of its gross domestic product, in tax cuts and
supplementary fiscal budgets this year in an effort to prop up the economy.
Analysts, however, say the government needs to do more because the size of the
stimulus package was smaller than those of other major economies and most of the
benefits are aimed at the construction industry.
Earlier in the day, the Bank of Korea cut its key interest rate by an
unprecedented 100 basis points to three percent in what many analysts say is a
necessary step to keep the economy from plunging into recession.
"Further steps are urgently needed to stimulate the economy by boosting domestic
demand," said Heo Chan-kook, a senior research fellow at the Korea Economic
Research Institute, in a forum hosted by the Federation of Korean Industries.
He predicted South Korea's economy would grow 2.4 percent next year with private
consumption contracting 0.2 percent.
South Korea's economy has long relied on exports to fuel its economic growth,
particularly its auto, semiconductor and shipbuilding industries.
As the global economy is faltering, the nation's export juggernauts, including
Samsung Electronics Co. and Hyundai Motor Co., are increasingly feeling the
pinch.
Hyundai Motor, the world's fifth-largest automaker, is slashing its output at
home and overseas by idling some production lines to reduce inventories.
But the worst may be yet to come. "In 2009, advanced economies will shrink and
emerging markets will face the worst downturn since 2001," said Citibank Korea
economist Oh Suk-tae at the forum.
Oh expected the global economic downturn to last until 2010, calling on the South
Korean government to draw up more measures to expand fiscal spending and
liquidity supply.
Whether Thursday's record rate cut by the Bank of Korea will do any good for the
economy remains to be seen.
"It certainly won't harm the economy. But the big fall in rates is unlikely to be
a major stimulus to new investment," said Daniel Melser, a senior economist at
Moody's Economy.com, in a report.
The key to avoiding recession will not actually be the level of interest rates
but instead the size and success of government stimulus packages, Melser said.
"Today's massive rate cut has seen the Bank of Korea pass the ball firmly to
President Lee Myung-bak to do his part to support the economy," Melser said.
(END)