IMF predicts Korea's growth to be 'substantially negative'

SEOUL, Feb. 2 (Yonhap) -- The International Monetary Fund (IMF) predicted Monday
the South Korean economy will likely post "substantially negative" growth this
year as domestic demand and exports falter amid the global economic crisis.

The global financial body, however, expressed optimism that Asia's fourth-largest
economy will start to perk up from the second half and return to its growth
potential in 2010, though it depends on how fast global growth rebounds.
Despite its forecast of negative growth for the Korean economy, the IMF didn't
provide specific numbers. Its earlier prediction was a 2 percent expansion. Last
week, the IMF said that global economy will expand 0.5 percent this year, the
slowest pace since World War II, compared with its earlier projection of 2.2
percent.
"Although the carryover effects of the very weak fourth quarter of 2008 means the
headline growth number for 2009 will be substantially negative," Anoop Singh,
director of the IMF's Asia and Pacific Department in a statement exclusively
submitted to Yonhap News Agency.
"We project that the economy should begin to recover during the second half of
this year," Singh said. "The Korean economy should return to potential in 2010."
Singh said the global economy is in the midst of its most difficult period in the
post-war period.
"The financial crisis also severely weakened consumer and business confidence. As
a result, in a closely integrated world, countries across the global have come
under intense pressures, with exports and industrial production plummeting," he
noted.
Singh said that South Korea is not immune from the global economic turmoil and
its sharp contraction in the final quarter of last year bodes ill for months
ahead, though it is expected to recover starting from the second half.
According to the nation's central bank, South Korea's economy contracted 5.6
percent in the fourth quarter of last year from three months earlier, the
sharpest fall since the Asian financial crisis a decade ago.
The IMF joined a growing number of think tanks and investment banks, which have
recently lowered their outlooks for South Korea sharply to negative growth.
Switzerland-based UBS predicted the economy to shrink 3 percent for this year.
Moody's Investors Service lowered its outlook to minus growth of 2 percent, while
Fitch Ratings expected a 2.4 percent contraction. Standard & Poor's also lowered
its outlook for South Korea to zero percent.
Currently, the government aims to achieve a 3 percent expansion, while the Bank
of Korea, the nation's central bank, predicts growth of 2 percent, compared with
2.5 percent growth last year.
Despite the negative growth outlook, Singh remained optimistic over the long-term
prospects for South Korea's economy, citing "strong" fundamentals, the
government's "comprehensive and "forward-looking" approach to the global turmoil
and other economy-stimulus measures.
"What underpins the projected recovery in Korea? First, fundamentals are strong
-- the banking system is well capitalized, nonperforming loans are still low, and
balance sheets of large corporates are generally healthy, and second, Korean
policymakers have taken a comprehensive and forward-looking approach to the
global turmoil to maintain these fundamentals," he said.
"The government has been proactive in ensuring that liquidity in the banking
system remains ample despite the tightening of external financing conditions, and
has undertaken numerous initiatives to bolster the financial and corporate
sectors," he added.
He admitted that the year ahead for South Korea will be "undoubtedly" tough, with
its recovery depending heavily on external economic conditions.
"The coming year will undoubtedly be a difficult one for the global economy and
Korea. There is considerable uncertainty about precisely when global growth will
begin to recover, but once it does -- most likely by the second half of this year
-- Korea appears well positioned for a solid recovery," he said.
kokobj@yna.co.kr
(END)