IMF Forecasts Minus 4% Growth for Korea
By Yoon Ja-young
Staff Reporter
The International Monetary Fund (IMF) has revised its estimated growth rate for the Korean economy this year to minus 4 percent.
It is the worst figure among G20 countries and a huge drop from the 2 percent GDP growth it estimated for Korea last November.
The fund estimated the economy would contract by 5.1 percent in the first quarter, 5.9 percent in the second quarter, and 5.7 percent in the third quarter. Only as late as in the fourth quarter would it grow by just 0.9 percent.
Other developed economies are estimated to contract by 2 percent on average.
The pessimistic estimation is based on Korea's heavy dependency on exports. The global economy is expected to grow only 0.5 percent this year, the lowest since World War II. The Korea Development Institute (KDI) projects that the growth rate of the Korean economy will fall by between 0.6 and 1 percentage point for every 1 percent loss in the global economic growth rate.
``As the Korean economy is one of the most globally integrated in the world, it has been largely affected by the global financial crisis, contracted by 5.6 percent in the last quarter of 2008, over the previous quarter. This is due to declining exports because of sluggish global demand, and weakening domestic consumption and investment,'' said Anoop Singh, director of the Asia and Pacific Department of the IMF, in a statement.
Allen Sinai, president of Decision Economics and a renowned economist, also pointed out Korea's heavy dependence on exports. ``The South Korean economy is so open,'' Sinai said in a seminar organized by the Institute for Global Economics, Tuesday. ``When the U.S. consumer weakens, Chinese exports to the U.S. weaken, as do South Korean exports to the U.S. and China,'' Sinai said, adding that Americans will be forced to save their income and no longer be able to spend on credit and debt. Korea's economy is 76.1 percent dependant on foreign sectors as of 2007.
The IMF, however, estimated the economy to recover from the latter half of this year, recording a 4.2 percent growth rate next year, following 8 percent growth in China and 6.5 percent in India. ``Korea's fundamentals are strong: The banking system is well capitalized, non-performing loans are still low, and balance sheets of large corporations are generally healthy,'' Singh said.