S. Korean economy to shrink 2.4 pct this year: BOK

(ATTN: RECASTS lead; UPDATES with remarks by central bank official and details)
By Kim Soo-yeon
SEOUL, April 10 (Yonhap) -- The South Korean economy is expected to contract 2.4
percent this year, the worst performance in 11 years, as a global recession will
likely hurt exports amid stubbornly weak domestic demand, the central bank said
Friday.
The growth projection by the Bank of Korea (BOK) is a downward revision from its
estimate of a 2 percent expansion made in December. Asia's fourth-largest economy
grew 2.2 percent last year.
"The local economy may bottom out in the second or the third quarter. But given
the current economic conditions, it's difficult to expect a sharp recovery," Kim
Jae-chun, director-general at the BOK's research department, told a press
conference.
"The pace of the economic recovery is expected to be very slow and the economy
may get better only after the second half of next year."
The BOK said the local economy is estimated to have grown 0.2 percent on-quarter
in the first quarter of this year and will likely expand 0.5 percent in the
current quarter. It forecast a 3.5 percent expansion for next year.
The BOK's lower growth estimate comes as the government says Asia's
fourth-largest economy is likely to contract 2 percent this year even after
taking into account a record 28.9 trillion won (US$21.9 billion) extra budget
aimed at creating more jobs and jump-starting the sputtering economy. Of the
total, it set aside 17.7 trillion won for fiscal spending.
The government and the central bank are making efforts to cushion the impact of
the global recession on the Korean economy by unveiling a string of stimulus
packages and cutting the key rate.
"The Korean economy is likely to approach bottom in the current or the next
quarter," said Lee Sung-kwon, an economist at Goodmorning Shinhan Securities Co.
"Although the BOK left a door open for additional rate cuts, it seems to have
effectively wrapped up its easing cycle for the year."
Exports, which account for about 60 percent of GDP, are forecast to tumble 9.9
percent in 2009, a turnaround from a previous prediction of a 1.3 percent
expansion.
Private spending, one of the economy's main growth engines, will likely decline
2.6 percent this year, compared with estimates of a 0.8 percent gain as the
economic slump dents household income and job markets.
Facility investment is forecast to plunge 18 percent, far above a previous
forecast of a 3.8 percent contraction, while construction investment is projected
to gain just 1.8 percent, lower than an earlier estimated 2.6 percent rise.
Meanwhile, the BOK expected the country's inflation to slow to 2.7 percent,
compared with an earlier 3 percent estimate, as falling oil prices and slumping
demand reduce overall import bills. The BOK aims to keep annual inflation between
2.5 percent and 3.5 percent until 2009.
"Starting in May, inflation will likely fall to the 2 percent range," Kim said.
The outlook downgrade comes a day after the BOK froze its key interest rate at a
record low of 2 percent for the second straight month in April, saying that a
sharp fall in economic activity has moderated. It had made six consecutive rate
cuts totaling 3.25 percentage points since October before taking a pause in
March.
Industrial output gained 6.8 percent on-month in February after posting a 1.6
percent advance in January. South Korea's trade surplus reached a record US$4.6
billion in March.
But despite some signs of improvements, BOK Gov. Lee Seong-tae warned that it
would be difficult to feel the bottoming out of the Korean economy in the first
half of this year, adding there is room for possible rate cuts.
The bank also said Korea is forecast to post a current account surplus of around
$18 billion this year, down from a previous estimate of $22 billion. The
government predicted that the surplus will likely reach around $16 billion.
sooyeon@yna.co.kr
(END)