Fears of Economic Contraction Growing
Global IBs Lower 2009 Growth Outlook for Korean Economy to Below 1%
By Kim Jae-kyoung
Staff Reporter
With every passing day bringing worse economic data, major global investment banks have lowered their 2009 growth outlook for the Korean economy to nearly zero, spawning fears that the economy will contract this year for the first time in a decade.
In its latest report released Monday, JP Morgan downgraded its 2009 outlook sharply to 0.5 percent from an earlier forecast of 1.5 percent, citing sluggish exports and falling industrial output.
``Recent data showed that economic activity in the fourth quarter was far weaker than we previously expected,'' JP Morgan economist Lim Ji-won said. Exports were down 17 percent compared to last year in December, while industrial production is expected to have plunged for the second straight month.
``Real gross domestic product (GDP) likely contracted 11 percent quarter-on-quarter in the fourth quarter, pushing down the 2008 and 2009 GDP forecasts to 3.4 percent and 0.5 percent, respectively,'' she added. ``This forecast assumes that the economy will bottom in the first quarter, followed by a solid rebound in mid-2009.''
On Friday, HSBC, the British global banking group, revised down its GDP growth forecast to minus 0.6 percent for 2009 from 3.4 percent. It would be the first contraction since 1998, when the economy shrank by 6.9 percent in 1998.
It forecast that the economy will contract for three straight quarters in a row, with the 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.
``Financial sector stress is now forcing financial institutions to cut back on credit, pushing down private consumption and investment spending growth,'' HSBC senior Asia economist Frederic Neumann said.
Two other investment banks ― UBS and Merrill Lynch ― also forecast minus growth this year. The Switzerland-based UBS projected that the economy will shrink by 3 percent in 2009, while Merrill Lynch predicts a 2 percent contraction. Deutsche Bank and Standard Chartered Bank downgraded their 2009 outlook to 0.2 percent and 1.4 percent, respectively, late last year.
Goldman Sachs also marked down its forecast for Korea's 2009 GDP substantially from 3.1 percent to 1.8 percent.
``The scale of contraction is comparable to two major recessions in 1980 and 1998, indicating that Korea was most likely already in recession even before major fiscal stimulus packages were implemented,'' Goldman Sachs economist Kwon Goo-hoon said.