Growth Outlook Lowered to Minus 0.6%
By Kim Jae-kyoung
Staff Reporter
HSBC, the British global banking group, has downgraded its 2009 economic growth outlook for Korea to below zero percent, citing sluggish exports and falling industrial production.
In its first quarter outlook report, HSBC said that it revised its gross domestic product (GDP) growth forecasts to 2.7 percent and minus 0.6 percent for 2008 and 2009, respectively, from 3.9 percent and 3.4 percent, respectively.
It forecast that the economy will contract for three straight quarters in a row, with GDP growth forecast to shrink 2.8 percent in the fourth quarter, 4.4 percent in the first quarter and 2 percent in the second quarter, the first recession since the 1997-98 financial crisis, when the economy shrank for three consecutive quarters.
``With domestic spending becoming weak, exports have driven Korea's GDP growth. Now, however, the engine is stalling in the face of a worldwide economic slump. Korea's shipments to the U.S. are likely to plunge.
Korea's December exports fell 17.4 percent from a year ago, while November industrial production dipped 14.1 percent year-on-year.
It pointed out that despite the government's stimulus package, confidence still remains subdued in Korea, since excessive leverage among households, small firms, and banks is putting further pressure on the economy
``Financial sector stress is now forcing financial institutions to cut back on credit, pushing down private consumption and investment spending growth,'' it said.
However, HSBC sees a V-shaped recovery for Asia's fourth largest economy.
It forecast that the Korean economy will rebound sharply in 2010, with the GDP expected to grow 4.3 percent year-on-year following a 0.6 percent contraction this year.
``We suspect that the government's policy initiatives, such as extra construction spending, will gain traction as the year progresses,'' Hong Kong-based HSBC Senior Asia economist Frederic Neumann told The Korea Times via e-mail.
``Therefore, growth should turn positive by the middle of the year, helping to ease stresses in financial markets and leading to a recovery in asset prices,'' he added.