Lee Warns Korean Economy May Shrink in First Half
South Korea’s economy may shrink in the first and second quarters of next year, affected by a global economic slowdown, President Lee Myung Bak said today.
“The world economy is difficult and South Korea is heavily dependent on the external side,” Lee said at a meeting at the presidential house in Seoul today, according to his office Web site. “Even though we may post positive annual growth, we’re in danger of negative growth in the first and second quarters.”
South Korea’s economy will expand 2 percent, the slowest pace in 11 years, in 2009 as the deepening global recession cools demand at home and abroad, the central bank said on Dec. 12. The economy last contracted for two consecutive quarters in 1998, and Lee’s comments come after he pledged last week to ensure growth next year.
“Negative growth is unavoidable,” said Chun Chong Woo, senior economist at SC First Bank Korea Ltd. “We’re bound to be affected by the global slump, and the government will have to think of more aggressive policies to help spur the economy.”
Exports of goods will rise 1.3 percent, slowing from an estimated 3.6 percent gain in 2008, the central bank forecast in its 2009 outlook. The nation targets exports of $450 billion next year, the Minister of Knowledge Economy said yesterday, trimming its November forecast of $500 billion payday loans.
Cut & Stimulate
South Korea should use interest-rate cuts and fiscal stimulus to cushion the economy from the global recession and avoid depleting its foreign-currency reserves to prop up the won, the Organization for Economic Cooperation and Development said on Dec. 17.
The Bank of Korea has cut its key rate by 2.25 percentage points since October, the most aggressive easing since it first set a benchmark in 1999. The bank most recently cut the benchmark rate by 1 percentage point to a record low 3 percent on Dec. 11.
South Korea is also pumping funds into banks, cutting taxes and boosting public spending to limit the fallout from the global credit crisis, which sent the Korean won down more than 28 percent and the stock index tumbling 41 percent this year.
“We see the first and second quarters to be the bottom,” Lee said. “There’s hardly any country posting economic growth from the fourth quarter to the first quarter.
“There is an end to this agony,” he said. “It won’t last 10 or 20 years.”