S. Korean economy shrinks 5.6 pct in Q4

(ATTN: UPDATES with central bank official's remarks in para 6; TRIMS throughout)
By Kim Soo-yeon
SEOUL, Jan. 22 (Yonhap) -- The South Korean economy shrank 5.6 percent last
quarter from three months earlier, the sharpest fall since the financial crisis a
decade ago, due to faltering exports and sluggish domestic demand, the central
bank said Thursday.
The country's gross domestic product (GDP) also contracted 3.4 percent from a
year earlier, the Bank of Korea (BOK) said. The quarterly performance contrasts
with a 0.5 percent expansion in the third quarter.
It marked the worst drop since the first quarter of 1998 when the nation's GDP,
the broadest measure of economic performance, fell 7.8 percent on-quarter in the
aftermath of the Asian financial crisis.
The fourth-quarter decline was worse than a median 2.5 percent on-quarter fall
forecast in a survey of 11 analysts by Yonhap Infomax, the financial news arm of
Yonhap News Agency.
For the whole of 2008, the Korean economy grew 2.5 percent, down from a 5 percent
expansion in 2007. The BOK predicts the local economy will likely grow just 2
percent this year.
"Slumping exports largely contributed to the fourth-quarter economic contraction.
There is a high possibility that the 2009 economic growth will miss the BOK's
earlier 2 percent estimate," Choi Chun-sin, director general of the BOK's
economic statistics department, told a press conference.
His remarks come as Asia's fourth-largest economy is cooling more markedly than
expected with exports, the mainstay of the nation's economic growth, showing
signs of a sharp slowdown amid a global recession.
"The Korean economy contracted, hit by tumbling exports. The fallout from Lehman
Brothers' failure seemed to heavily weigh on the real economy in the fourth
quarter," said Jun Min-kyu, an economist at Korea Investment & Securities Co. "I
think the BOK is expected to continue its monetary easing and may cut the key
rate, probably to as low as 1.5 percent, until the first half.
According to the central bank, exports of goods, which account for about 60
percent of South Korea's GDP, tumbled 11.9 percent on-quarter in the three months
ended Dec. 31 after declining 1.9 percent in the third quarter. The figure marked
the biggest fall since the first quarter of 1979 when overseas shipments fell an
identical 11.9 percent.
Private spending, one of the main growth engines of the Korean economy, fell 4.8
percent in quarter four, compared with a 0.1 percent gain in the preceding three
months. It was the lowest level since the first quarter of 1998 when consumer
spending dipped 14.6 percent.
Facility investment plunged 16.1 percent, the worst in nearly 11 years, after
rising 2.1 percent three months earlier. Construction investment declined 4
percent after remaining flat in the third quarter.
Experts said the bleak growth readings are expected to prompt the BOK to continue
its monetary easing next month to kickstart the sputtering economy.
In January, the BOK cut the benchmark seven-day repo rate by half a percentage
point to a record low of 2.5 percent, the fifth reduction in three months. Since
October, the bank has trimmed the rate by a combined 2.75 percentage points.
On Monday, President Lee Myung-bak replaced his finance minister and other key
economic officials in an effort to better cope with the slumping economy and
financial turbulence.
The government, which is targeting 3 percent growth this year, has unveiled a
raft of economic stimulus packages including additional fiscal spending and tax
cuts.
sooyeon@yna.co.kr
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