Economy Losing Growth Momentum
2009 GDP Grows at Slowest Pace in 11 Years
By Lee Hyo-sik
Staff Reporter
The Korean economy posted a better-than-expected 0.2 percent growth last year but the momentum is losing steam, with the fourth quarter gross domestic product (GDP) gains slowing to a moderate pace due to the waning effect of the government's stimulus policies.
The Bank of Korea (BOK) said Tuesday that in the final quarter of 2009, the GDP inched up 0.2 percent from the previous three-month period, down from a 3.2 percent gain in the third quarter and a 2.6 percent increase in the second quarter.
The key culprit behind the setback was the decrease in the nation's outbound shipments and private spending, along with waning fiscal spending.
Manufacturing output declined 1.3 percent in the fourth quarter from the July to September period, with the construction sector contracting 1.4 percent. Exports, which account for about 50 percent of the nation's GDP, decreased 1.8 percent, while private spending inched down 0.1 percent.
With the fourth-quarter slowdown, the GDP, the total value of goods and services produced in the country, grew 0.2 percent last year from 2008, the worst performance since a 5.7 percent contraction in 1998 when the nation was grappling with the Asian financial market meltdown.
Despite the minimal number, it was still regarded as a positive figure, given that most advanced countries' economies contracted, as they were hit hard by the global economic recession.
Korea's GDP growth rate has been declining for the past three years since 2007 when it jumped 5.1 percent, down from a 5.2-percent year-on-year gain in 2006. In 2008, output grew 2.2 percent from the previous year.
``The Korean economy was initially expected to contract by as much as 4 percent last year in the wake of the global financial crisis. But it managed to grow, thanks largely to aggressive government stimulus measures and stronger-than-expected exports. Even though the 2009 GDP growth fell to an 11-year low, we are one of the few economies in the world that produced more goods and services in 2009 than the previous year,'' a BOK official said.
Despite a slowdown in the fourth quarter, the official said the nation's economy will continue to stay strong as more advanced economies emerge from the slump, demanding more Korea-made goods.
The central bank projects the economy will expand by 4.6 percent in 2010 from a year earlier, with the government setting the 2010 growth forecast at 5 percent.
LG Economic Research Institute economist Lee Geun-tae echoed the BOK's view, saying the ongoing rebound will continue to pick up pace down the road, stressing the need for the government to continue expansionary fiscal policies and the central bank to maintain accommodative policies for the foreseeable future.
In the aftermath of the collapse of Lehman Brothers in September 2008, international investors dumped local stocks and bonds, and took dollars out of Korea en masse, sending share prices and the Korean won into a nosedive.
Many foreign investors and media outlets said the country would be the hardest-hit Asian nation, citing its huge short-term borrowing from abroad, the sharp depreciation of the local currency and other unfavorable conditions. They even raised the possibility that the country could face a recurrence of the foreign exchange crisis.
In addition, economic research institutes at home and abroad rushed to downgrade Korea's outlook, saying its GDP would shrink by as much as 4 percent in 2009.
But businesses conditions here began improving sharply from the second quarter of 2009, on the back of the easing of the global financial market turmoil and growing overseas demand for Korea-made goods. Korea emerged as one of the fastest rebounding economies across the globe.
With the government becoming substantially more upbeat about the outlook, private economic research institutes at home and abroad also rushed to revise upward Korea's growth projections for 2010.
Last October, the OECD raised its 2010 growth projection for the nation to 4.4 percent from the previous 3.5 percent, with the International Monetary Fund (IMF) boosting Korea's 2010 outlook to 3.6 percent from the previous 2.5 percent.
The state-run Korea Development Institute expects the country's GDP to expand 5.5 percent in 2010, while Samsung Economic Research Institute said the economy will likely grow 4.3 percent.