By Kim Jae-kyoung
Staff Reporter
The Korean economy is expected to undergo a V-shaped recovery, with its gross domestic product (GDP) growth forecast to fall to 2 percent in 2009 but rebound to 4 percent in 2010, according to the Bank of Korea (BOK) Friday.
In its 2009 GDP growth forecast, the central bank said that the economic growth will slow to 2 percent next year, the lowest level since a 6.9 percent contraction in 1998 when the Asian financial crisis shook the country.
However, growth is expected to rebound to 4 percent in 2010, buoyed by a recovery of the global economy, it added.
In the fourth quarter of this year, Asia's fourth largest economy was estimated to contract 1.6 percent, bringing the annual GDP growth down to 3.7 percent, the first quarterly setback since the first quarter of 2003.
``I think that the central bank's forecast was based on the assumption that the economy will undergo a V-shaped recovery, which I believe is too optimistic given that the global economic slump will continue for a considerable period of time,'' Citigroup Korea economist Oh Suk-tae told The Korea Times.
``The negative GDP growth in the fourth quarter suggests that the economy is going downhill at a steeper-than-expected pace. The economy has now fallen to depths previously reached only during the 1997-1998 financial crisis,'' he added.
The forecast came a day after the central bank slashed its key rate by a record one percentage point to a historic low of 3 percent in a desperate bid to prevent the economy from slipping into recession.
``Battered by a global recession, exports will contract significantly next year while sluggishness of domestic demand is deepening,'' BOK senior economist Kim Jae-chun said. The central bank forecast the U.S. economy to shrink 1 percent in 2009.
``As a consequence, economic growth may fall sharply to 0.6 percent in the first half but jump to 3.3 percent in the latter half,'' he added. ``However, if the global economy contracts next year, Korea won't be able to head off (negative growth).''
Exports, which account for about 60 percent of the country's GDP, are forecast to contract 6.1 percent next year, a major setback from an estimated 14.7 percent expansion this year, and the first negative growth since 2001.
Consumer spending is expected to grow only 0.8 percent, while facilities investment is forecast to shrink 3.8 percent. The number of new job offerings is forecast to fall to a six-year low of 40,000 next year, compared with 140,000 in 2008.
Consumer price inflation is expected to slow to 3 percent next year from a 10-year high of 4.7 percent in 2008, on the back of a fall in oil prices. The current account is forecast to shift back to a surplus of $22 billion, a turnaround from an estimated deficit of $4.5 billion for this year.
The central bank's 2009 prediction seems quite optimistic compared to forecasts by global investment banks, which recently lowered their outlook to below 2 percent.
Goldman Sachs recently marked down Korea GDP forecast for 2009 from 3.1 percent to 1.8 percent, while JP Morgan and Merrill Lynch lowered their growth predictions to 1.5 percent. GDP is the total value of goods and services produced within the economy in a given period.
The Switzerland-based UBS projected that the economy will shrink by 3 percent in 2009, the first contraction since 1998. Standard Chartered Bank downgraded its 2009 outlook to 1.4 percent
``Ongoing global financial turbulence is taking a heavy toll on the global economy, with the damage accentuated in recent weeks,'' Goldman Sachs economist Kwon Goo-hoon said.
``A recent precipitous drop in global economic activity, which we expect to grow only 1.5 percent in 2009, poses a heightened risk to the economic outlook of Korea, given its high albeit diversified reliance on export markets,'' he added.