OECD Cuts Korea’s Growth to 2.7%
By Lee Hyo-sik
Staff Reporter
The Organization for Economic Cooperation and Development (OECD) slashed South Korea's 2009 growth rate sharply to 2.7 percent, Tuesday, from an earlier prediction of 4.3 percent made in June, citing growing concerns of a prolonged global recession and its fallout on the export-dependent economy.
But the world's 13th largest economy will expand at a higher rate of 4.2 percent in 2010 on improving global economic conditions, the OECD projected in its biannual report.
This is the latest in a series of downgrades for the Korean economy. Major economic research institutes at home and abroad have cut the nation's growth rate to below 3 percent in recent months.
In particular, foreign financial services firms are slashing Korea's growth projection at a much steeper rate based on worst-case scenarios, with UBS floating the possibility of economic contraction.
``Korea has been hard-hit by the global financial crisis and the earlier commodity price shock, which together ended expansion and pushed up inflation. Growth is projected to fall to below 3 percent in 2009 and then pick up gradually as the world economy improves,'' the OECD said.
It said the economic outlook is highly uncertain given the severity of the shocks to Korea and the problems facing the world economy, adding a strong economic rebound is unlikely before 2010.
``Continued world financial turmoil may further worsen the short-term outlook by undermining the health of Korean financial institutions, resulting in a credit crunch. There is also a risk that high inflation becomes entrenched, eventually requiring forceful and costly monetary policy tightening to bring it back within the target zone,'' it noted.
The Paris-based organization also said the large depreciation of the won may lead to a sharper and earlier-than-expected upturn led by buoyant exports, adding the additional fiscal stimulus announced this month is likely to have a positive impact on activity.
Consumer price growth here will fall to 3.5 percent next year from an estimated 5 percent gain in 2008, it projected. Household spending and corporate investment will remain stagnant, while the unemployment rate will rise to 3.6 percent from this year's estimated 3.2 percent.
It also forecast that the U.S. economy will contract 0.9 percent in 2009 from this year, while the Japanese economy will shrink 0.1 percent. The average growth rate of OECD member economies is projected to contract 0.4 percent.
Many OECD economies are in or on the verge of a protracted recession of a magnitude not experienced since the early 1980s, it added.
Meanwhile, the International Monetary Fund Monday significantly lowered its prediction for Korea's economic growth rate for next year to 2 percent from its earlier prediction of 3.5 percent, citing the ongoing global financial crisis adversely affecting domestic spending and exports.