Korean economy to shrink 2.5 pct this year: JPMorgan Chase

SEOUL, Jan. 23 (Yonhap) -- South Korea's economy will contract 2.5 percent in
2009 amid the deepening global recession, JPMorgan Chase & Co. said Friday,
sharply trimming its earlier projection of a 0.5 percent expansion.

The downgrade comes after many investment banks and research institutes predicted
the economy, Asia's fourth-largest, would post growth in the 1-percent range,
with some expecting a recession for the first time in more than a decade.
On Thursday, the Bank of Korea (BOK) said the nation's real gross domestic
product (GDP) shrank 5.6 percent on-quarter in the fourth quarter of last year.
This is the worst performance since the first quarter of 1998 when it fell 7.8
percent in the aftermath of the Asian financial crisis.
"With an early-stage inventory adjustment taking place in the manufacturing
sector, the slowdown there is taking its toll even on the service sector,"
JPMorgan economist Lim Ji-won said. "We expect GDP to remain in negative
territory during the current quarter."
In response to the economic downturn, the central bank is expected to lower the
interest rates by 0.5 percentage point in the upcoming policy-setting meeting
slated for Feb. 12, Lim added.
The BOK has been aggressive in reducing rates in recent months to stimulate the
economy, which is fast slipping into a recession due to weak domestic demand and
exports.
In January, the bank cut the benchmark rate by half a percentage point to a
record low of 2.5 percent, the fifth reduction in three months. Since October, it
has trimmed the rate by a combined 2.75 percentage points.
kokobj@yna.co.kr
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