By Lee Hyo-sik
Staff Reporter

The economy is facing increasing downside risks in the wake of a global economic downturn as domestic demand continues to deteriorate, failing to offset falling outbound shipments.

The United States, the world's largest economy, and Korea's second largest export destination, is losing steam fast with declining output in the services sector, which accounts for 90 percent of its gross domestic product (GDP), and a rising jobless rate. China, Korea's largest export market, has also seen its GDP growth drop to a single-digit 9 percent in the third quarter, posing a greater threat to the export-oriented local economy.

With growing concerns over a global recession and its fallout on Korea, Seoul stocks fell sharply Thursday, with the KOSPI falling below 1,100 points. A steep overnight fall on Wall Street also dampened the investors' sentiment, pushing down the benchmark index to 1,092.22, down 7.56 percent, or 89.28 points, from the previous session. The junior Kosdaq also lost 8.5 percent or 28.89 points to close at 311.96.

The won closed at 1,330.8 won against the dollar, down 64.8 won from Wednesday's close, as foreign investors sold local shares, converted money into dollars and took them out of the country.

The Ministry of Strategy and Finance said Thursday that despite easing inflationary pressure following the fall of oil prices, the world's 13th largest economy will continue to head downward for the foreseeable future as exports, the nation's main engine of growth, have shown visible signs of a slowdown.

``A bigger problem is that domestic demand, which is supposed to propel growth on behalf of slowing exports, continues to worsen, weighing down on business activities and job creation. All these factors will certainly dampen economic expansion toward the year's end and beyond,'' it predicted.

It said the nation should first place top priority on stabilizing the currency and financial markets. ``Then, we should increase fiscal spending to stimulate domestic demand and create more jobs. It is also necessary to introduce a range of policy measures to help small firms and low-income earners deal with the current financial difficulties,'' the report stressed.

According to the Bank of Korea (BOK), the nation's gross domestic product (GDP) grew 3.9 percent year-on-year in the third quarter, the slowest since the second quarter of 2005.

Industrial production increased by just 6.1 percent in September from a year earlier, staying in single digits for the fifth consecutive month, according to the National Statistical Office (NSO). Exports grew 10 percent year-on-year in October, sharply down from the average 22.7 percent gain during the January to September period.

The number of new job offerings stood at only 112,000 in September, falling far short of the government target of 200,000, and the smallest figure since February 2005, indicating that businesses have become more reluctant to hire new workers.

Retail sales dropped 2 percent as more consumers tightened their purse strings, the office said.

Major research institutes at home and abroad project that Asia's fourth largest economy will expand by below 4 percent next year, with UBS floating the possibility of only 1.1 percent growth.

Samsung Economic Research Institute put Korea's 2009 growth rate at 3.6 percent, while the International Monetary Fund (IMF) forecast the economy would grow 3.5 percent.

However, the government has pledged to propel growth to the 4 percent range, create 200,000 jobs and post a current account surplus of $5 billion next year through a $26 billion stimulus package, equal to 3.7 percent of GDP.

leehs@koreatimes.co.kr