S. Korea's economy to expand 0.2 pct this year: KDI

SEOUL, Nov. 22 (Yonhap) -- South Korea's economy is expected to grow 0.2 percent
this year, a state-run think tank said Sunday, making a sharp growth revision
based on improving exports, domestic demand and other macroeconomic indicators.
The growth projection by the Korea Development Institute (KDI) is much higher
than the negative 0.7 percent it predicted in September. It also forecast that
the local economy will expand 5.5 percent next year, the highest prediction made
by any major think tank or economic research body at home and abroad.
"Our economy remains in recovery phase, with a continued rebound in exports and a
pick-up in the private-sector consumption and investment. As the global economic
recovery is expected to steadily materialize, our economy will also remain on a
solid growth path," the KDI said in the report.
Such a sharp growth revision comes as the government and major global economic
institutes are beginning to offer more optimistic views of the Korean economy,
which was hard-hit by the financial turmoil and a resulting global recession last
year.
On Thursday, Finance Minister Yoon Jeung-hyun told a meeting with heads of local
private and state-run economic think tanks that growth for next year will be
stronger than his previous forecast of 4 percent.
On the same day, the Organization for Economic Cooperation and Development
predicted the nation's gross domestic product will grow 0.1 percent this year
before expanding 4.4 percent in 2010. The steep rebound is also attributed to
recovering exports and consumption at home.
The KDI explained that its revised growth forecasts are mostly based on
expectation that exports will rebound as demand for South Korean products from
emerging countries including China spikes.
"We expect that the 2010 global economy will make a steady recovery after
emerging from its downturn this year. With China to spearhead growth in emerging
countries, the U.S. and other advanced nations will also see a turnaround of
their economies," the report said.
Private-sector consumption will perk up next year, the KDI said. Consumption will
jump 4.9 percent next year after expanding a mere 0.4 percent for this year.
Facility investments will also likely to make a steep turnaround by expanding
17.1 percent next year following a 9.8 percent contraction this year, it added.
Value-based exports will contract 13.8 percent this year but they will expand
13.7 percent next year, which would help drive the nation's economic growth,
according to the institute.
The KDI's latest growth outlooks added to optimism that South Korea is fast
emerging from what many see as the worst downturn in more than a decade, sparked
by the financial and economic turbulence that started late last year.
Experts say that the better-than-expected performance of the Korean economy is
mainly due to diverse measures introduced over the past year by the government
and the central bank to combat the downturn that include budget frontloading, tax
reductions and record-low key interest rates.
Against this backdrop, debate has been mounting over when and how to roll back
such stimulus measures in order to minimize side effects they could bring on the
economy if remained in place for a protracted period.
The government is currently sticking to its earlier plan to maintain the
expansionary macroeconomic policy for the time being until sustained growth is
assured.
The KDI, however, noted that the government needs to normalize those measures
taken under a "state of economic crisis" on a steady basis so that the budding
recovery trend can lead to more sustained growth down the road.
"It is desirable to withdraw such diverse abnormal measures taken under the state
of crisis??? It is also necessary to think how to cope with side effects and
other economic instability that could be caused when expansionary policy stance
is maintained for a protracted period of time," the think tank said.
kokobj@yna.co.kr
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