S. Korean economic growth to cool to 2 pct in 2009: BOK

By Kim Soo-yeon
SEOUL, Dec. 12 (Yonhap) -- The South Korean economy is expected to grow at the slowest pace in 11 years in 2009 as a global recession will likely hurt exports amid stubbornly weak domestic demand, the central bank said Friday.
The country's gross domestic product (GDP) is forecast to grow 2 percent in 2009,
down from an estimated 3.7 percent advance for this year, according to the Bank
of Korea (BOK). Asia's fourth-largest economy grew a robust 5 percent last year.
The 2009 growth prediction would mark the lowest level since a 6.9 percent
contraction in 1998 in the aftermath of the Asian financial crisis.
But the BOK said the nation's economic growth will pick up to 4 percent in 2010
as the global economy will likely gradually recover.
GDP, the broadest measure of an economy's performance, is the total value of
goods and services produced within the economy in a given period.
"Next year, the economy is expected to expand 3.3 percent on-year in the second
half after growing 0.6 percent in the first six months of 2009," the BOK said in
a statement.
A gloomy growth outlook comes a day after the BOK slashed its key interest rate
by a record full percentage point to an all-time low of 3 percent, the fourth
rate cut in two months, to bolster the cooling economy. The government has
unveiled a raft of economic stimulus packages like additional fiscal spending and
tax cuts.
The GDP forecast cut follows similar moves by global investment banks and
international bodies. The International Monetary Fund lowered its growth
prediction for the Korean economy to 2 percent from 3.5 percent. Major global
investment banks predicted an average of 1.2 percent for South Korea. But the
government is targeting at around 4 percent growth.
According to the BOK, exports, which account for about 60 percent of the
country's GDP, are forecast to expand 1.3 percent annually next year, down
sharply from an expected 3.6 percent rise in 2008. Consumer spending will likely
advance a mere 0.8 percent in 2009 after rising an estimated 1.5 percent this
year, it added.
The country's overseas shipments, which have propped up the Korean economy, have
already showns sings of a slowdown as the global downturn has begun to deal a
blow to emerging markets like China. Korean exports declined 18.3 percent on-year
in November, the biggest drop in seven years.
Meanwhile, the BOK expected the country's inflation to slow to 3 percent next
year from a 10-year high of 4.7 percent in 2008 as falling oil prices continue to
reduce overall import bills. The BOK aims to keep annual inflation between 2.5
percent and 3.5 percent until 2009.
The central bank also said Korea's current account is expected to swing to a
surplus of US$22 billion next year after the country logs the first annual
deficit of $4.5 billion in 11 years in 2008.
Experts say that the sharp slowdown and easing inflation outlooks would give room
for the BOK to further lower the borrowing costs.
"Given the worsening economic activities and global financial uncertainties, the
BOK is likely to continue its monetary easing until the first half of next year,"
said Lee Sung-kwon, an economist at Goodmorning Shinhan Securities Co.
The BOK has trimmed the policy rate by a combined 2.25 percentage points from
5.25 percent since early October in an effort to keep global financial turmoil
from impacting the real economy.
sooyeon@yna.co.kr
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