Global investment banks upgrade growth projections for S. Korea

SEOUL, July 29 (Yonhap) -- Global investment banks are painting a rosier view of
the South Korean economy for this year as indicators point to a rebound from the
turmoil sparked by the financial crisis last year, financial bodies said
Wednesday.

According to data provided by the Korea Center for International Finance and
other financial institutes, Morgan Stanley, Goldman Sachs, Barclays and other
major investment banks recently upgraded their growth outlooks for South Korea,
citing improving domestic demand and exports.
Morgan Stanley revised up its 2009 growth projection for South Korea to minus 0.5
percent from the minus 1.8 percent predicted in June, while also predicting that
growth will accelerate to 5 percent next year from the previously-forecast 3.8
percent.
Goldman Sachs joined the move, projecting that the economy will contract 1.7
percent this year, up from its earlier projection of minus 3 percent.
Barclays also raised its projection from minus 2.5 percent to 1.2 percent for
this year and Deutsche Bank revised up its projection to minus 1.6 percent from
minus 2.9 percent in its June report.
The upgrade by major global investment banks comes as Asia's fourth-largest
economy is showing signs of recovering from its steep contraction last year.
The nation's gross domestic product grew 2.6 percent in the second quarter of
this year from three months earlier, much higher than an earlier government
prediction of a 1.7 percent advance. The figure is also higher than a 0.1 percent
advance in the first quarter.
The Seoul government earlier predicted that the economy will shrink 1.5 percent
this year, the first minus growth in more than a decade, as exports and domestic
demand were dented by a protracted global recession.
Buffeted by the global financial turbulence that started last summer, South
Korea's economy went into free fall with its stock and currency markets losing
substantial ground.
The crisis prompted the government and the central bank to implement large-scale
fiscal spending and aggressive cuts to the key interest rate. The government also
rushed to frontload its fiscal spending in the first half aimed at generating
jobs and boosting domestic demand.
Despite the optimistic growth outlooks, many investment banks say that the
nation's central bank will not be able to raise its key interest rate in the
months to come, citing stagnant labor markets and still-high household debt.
Seven investment banks including Morgan Stanley and Goldman Sachs expected the
Bank of Korea to retain its rate at the current record low of 2 percent until the
end of this year.
South Korean policymakers have said that they will stick to an "expansionary"
economic policy as it is "premature" to say that the economy is making a full
recovery.
kokobj@yna.co