Economic Hard Landing Looming
By Lee Hyo-sik
Staff Reporter
Korea is expected to face an economic hard landing next year, with exports tumbling and unemployment rising.
According to analysts, the nation is expected to see its exports growth tumble to single digits and employment post negative growth next year, meaning the increased possibility of a hard landing caused by the Wall Street-originated global economic crisis.
The Organization for Economic Development and Cooperation (OECD) forecasts a 6.4 percent growth in exports, while the state-run Korea Development Institute's prediction is about 5 percent. Private researchers expect single digit growth with one affiliated to SK Group going as far as to predict a 2.7-percent contraction on a year-to-year basis. All told, this would mean the first time that the nation will record single digit growth in annual exports.
Unemployment is also set to go up, with the total number of jobs available going down in the next two quarters. In 2003, Korea's economy grew 3.1 percent but the overall job figure contracted.
This dismal outlook is by and large related to the below 3-percent overall growth expected for Korea next year.
More specifically, exports have lost steam on lackluster overseas demand for Korean-made products, while the already-stagnant domestic consumption and corporate investment will likely deteriorate further.
Additionally, builders and other cash-strapped businesses are expected to undergo drastic restructuring, sending a large number of workers out on the street.
A jump in the number of unemployed will start a vicious circle in which decreased household income dampens private spending and forces businesses to cut production and investment, generating more jobless.
With these unfavorable conditions, economic research institutes at home and abroad have cut Korea's 2009 growth rate to below 3 percent in recent months, with UBS floating the possibility of economic contraction. They expect the world's 13th largest economy to shrink in the fourth quarter or in the first quarter of next year, compared to the previous three-month period.
Many manufacturers and services providers will face a shutdown next year, producing a large number of jobless. The nation is already grappling with the rapid loss of jobs in recent months.
According to the National Statistical Office (NSO), only 97,000 jobs were created in October, the lowest monthly figure since February 2005, substantially lower than the government target of 200,000.
In 2003, the number of employed fell as many businesses went bankrupt, following the credit card bubble burst, even though the economy expanded 3.1 percent.
In October, industrial production contracted 2.4 percent from a year earlier, the first drop since September last year. Retail sales dropped 3.7 percent, while corporate facility spending on machinery and telecommunications fell 7.7 percent.
In October, exports increased only 0.7 percent from a year ago, the slowest pace since February 2002, when they shrank 1.9 percent.
Some even say the nation's outbound shipments could fall in the first quarter if the global slowdown is more severe than initially thought.
``If exports contract next year, it will deal a serious blow to the Korean economy. With the prolonged sluggish domestic consumption, slowing outbound shipments will further weaken the nation's growth momentum, hitting businesses and households hard,'' LG Economic Research Institute Vice President Oh Moon-suk said.