Bleak external conditions cloud outlook for S. Korean economy: report

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SEOUL, May 7 (Yonhap) -- South Korea's economic downturn is easing on the back of
the government's expansionary measures, but bleak external conditions make a
sustained recovery difficult to predict, a finance ministry report showed
Thursday.
In the report submitted to President Lee Myung-bak, the Ministry of Strategy and
Finance added that it will maintain its expansionary fiscal and monetary policy
while seeking to restructure the corporate sector in a bid to avert the first
minus growth in more than a decade.
"Financial markets are stabilizing and some indicators are pointing to an eased
downturn of the economy with the government's expansionary macroeconomic measures
paying off," the ministry said in the report.
"However, the pace of recovery is still slow and uncertain external conditions
still make it difficult to predict whether the recovery will be sustainable," it
added.
The broad economic assessment comes as experts are cautiously raising hopes the
economy, Asia's fourth-largest, could recover at a faster-than-expected pace as
some indicators are showing that the worst is nearly over.
Buffeted by a protracted global downturn, the South Korean economy is feared to
contract 2.4 percent this year, the first negative growth in more than a decade,
according to the latest prediction by the central bank.
The government has increased liquidity into the financial markets to offer needed
money for companies and banks, while unveiling diverse pump-priming measures
aimed at kick-starting the sagging economy.
The Bank of Korea slashed its key interest rates by 3.25 percentage points to a
record low of 2 percent since October last year. Last month, the National
Assembly passed a 28.4 trillion won extra budget, also helping to speed up the
government's bid to revive the sagging economy.
Financial markets are recently stabilizing after suffering severe turbulence
since last summer when U.S. investment giant Lehman Brothers collapsed, which
caused fears that companies and banks might not be able to secure liquidity for
debt payment and ordinary business operations.
The nation's benchmark stock index has surged around 25 percent since the start
of this year, while the currency, which plunged last year, has also recouped much
of its losses and is now trading at below 1,300 won versus the greenback.
In the first quarter of this year, the economy barely avoided a recession, or two
straight quarters of contraction, by growing 0.1 percent from three months
earlier. The first-quarter gain compares with a 5.1 percent quarterly plunge for
the October-December period.
The ministry said that it will keep its macroeconomic polices until the private
sector demonstrates its own ability to recover, while accelerating planned
government spending to help kick-start the economy.
"Expansionary monetary and fiscal polices helped ease a sharp economic downturn,
while expanded credit guarantees and more foreign liquidity supply contributed to
easing credit crunch and stabilizing foreign currency markets," the report said.
"We will keep our macroeconomic polices until the private sector attains ability
to recover on its own," it added.
As for growing fears that excessive money has been pumped into markets, the
ministry said it doesn't see the need to absorb it given the current economic
conditions, but added that it will closely monitor the overall money flow.
Regarding the ongoing corporate restructuring, meanwhile, the ministry added that
it will continue its efforts to enhance the health and competitiveness of
companies on a "sustainable" and "consistent" basis.
kokobj@yna.co.kr
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