Korean economy enters 'recessionary' phase: think tank

SEOUL, March 8 (Yonhap) -- The South Korean economy has been dragged into a recessionary stage, hit by weak domestic demand, mounting unemployment and a steep reduction in exports, the nation's major growth engine, a state-run think tank said Sunday.

"The Korean economy appears to be sustaining its recessionary phase with
continued domestic demand contraction and worsening employment conditions," the
Korea Development Institute (KDI) said in its monthly report that assesses
current economic trends.
The downbeat assessment comes as South Korea's economy is widely expected to post
minus growth this year for the first time in more than a decade.
The government predicts that the economy will shrink 2 percent, compared with a
2.5 percent advance in 2008. In the final quarter of last year, its gross
domestic product contracted 5.6 percent from three months earlier.
The KDI cited declining consumer spending and falling corporate facility
investment as downside risks to South Korea's economy. Exports are also losing
steam quickly, with overseas shipments falling 17.1 percent in February after
registering 33.8 percent decline in the previous month.
The labor market remained frozen as companies tend to delay or trim their
payrolls to counter collapsing demand from home and abroad. Household wages also
declined.
The economy shed 103,000 jobs in January, the largest fall since September 2004,
when the credit card bubble burst. The jobless rate stood at 3.6 percent, up 0.3
percentage point from a month earlier, according to the report.
Despite the prolonged economic downturn, consumer prices rose 4.1 percent last
month from a year earlier, accelerating from a 3.7 percent on-year advance in the
previous month. The growth is mainly due to increased costs from petroleum
products, the report showed.
The overall economic assessment by the think tank is in line with the Finance
Ministry's recent similar report that showed weak domestic demand and exports
have left the nation's economy in a downturn.
On Thursday, Finance Minister Yoon Jeung-hyun told reporters that the government
will take "bold, swift and preemptive" measures to stimulate domestic demand and
revive the economy.
He added that the government will finalize an extra budget plan "as soon as
possible" to create jobs and help ease the suffering of low-income people. News
reports show that the government is eyeing around 30 trillion won (US$19.3
billion) in extra spending.
kokobj@yna.co.kr
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