(News Focus) Growth data show economy on the skids

SEOUL, Jan. 22 (Yonhap) -- The South Korean economy is likely to lose further
steam down the road as the latest data show exports, the country's main growth
engine, are sliding rapidly amid a global slump, analysts say.
The Bank of Korea (BOK) said early Thursday the nation's gross domestic product
(GDP) shrank 5.6 percent in the fourth quarter of 2008 from three months earlier,
the sharpest fall since a 7.8 percent drop in the first quarter of 1998 in the
wake of the Asian financial crisis.
For all of last year, Asia's fourth-largest economy grew 2.5 percent, half of its
growth in 2007, the central bank said. It was the worst performance since 1998
when GDP contracted 6.9 percent.
"The Korean economy is contracting at a faster-than-expected pace. 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.
A set of economic indicators point to a deepening slump, as exports, which
account for more than 60 percent of the economy, are cooling more sharply than
expected amid the global recession.
Exports tumbled 11.9 percent on-quarter in the October-December period, marking
the biggest fall since 1970 when the BOK began to compile related data.
Private spending, another key growth engine, fell 4.8 percent in the fourth
quarter, the lowest level since the first quarter of 1998.
South Korea's manufacturing industry nosedived 12 percent in the fourth quarter
from three months earlier, the steepest fall in history, compounding worries that
companies will continue to cut spending and jobs.
In December last year, South Korea lost 12,000 jobs compared with a year earlier,
the first such contraction in more than five years.
Experts say Korea is entering into a recession. The BOK predicted last month that
the local economy will grow just 2 percent this year. The government is targeting
a 3 percent expansion, but many economists say growth will likely dip into the
1-percent range on plunging exports.
Indeed, the central bank hinted it may revise down its earlier growth forecast
given worsening conditions.
"There is a high possibility that 2009's 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.
Economists say the government should respond to such bleak data by boosting
efforts to kickstart the sputtering economy.
In January, the BOK cut the key interest 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.
The government, for its part, has unveiled tax cuts worth 35 trillion won ($25.5
billion) and planned for 16 trillion won in additional spending.
"Implementing more aggressive economic stimulus measures is necessary to prevent
the economy from slipping into a deep recession," said Lee Sang-jae, an economist
at Hyundai Securities Co. "I think the central bank will likely slash the rate to
1.5 percent until the first half."
Hwang In-seong, an economist at Samsung Economic Research Institute, said that
the government needs to more heavily frontload its annual spending to shore up
the economy.
sooyeon@yna.co.kr
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