Local Economy to Contract by 2.6% in First Half
By Lee Hyo-sik
Staff Reporter
The state-run Korea Development Institute (KDI) sharply slashed its 2009 growth outlook for Korea, Wednesday, to 0.7 percent from a projection of 3.3 percent it made in November.
It said the economy will shrink 2.6 percent in the first half of the year from a year ago and gain some momentum in the latter half on improving global economic conditions, expanding 3.8 percent from the previous year.
It also forecast that the world's 13th largest economy will lose more jobs than it will generate this year, presenting a bleak picture for workers and job seekers here; with private consumption, corporate investment and exports all contracting in the first half.
The think tank called on the government to take aggressive fiscal expansionary steps to bolster the sagging economy while injecting more capital into banks and other financial services companies to help them drastically restructure struggling businesses so that they can stay competitive.
The 0.7 percent growth projection is far lower than the government target of 3 percent and the Bank of Korea's 2 percent, but is in line with, or slightly lower than, those of major global investment banks and credit ratings agencies.
JP Morgan downgraded its 2009 forecast to 0.5 percent from its earlier 1.5 percent, citing sluggish exports and falling industrial output, while Deutsche Bank downgraded its outlook to 0.2 percent. Standard & Poors put the growth rate at zero percent. Fitch Ratings also forecast Wednesday that the Korean economy will shrink 2.4 percent.
``The global economy is projected to expand at a much slower rate this year than previously expected. It means overseas demand for local products will decrease at a steeper pace, pushing down Korea's growth rate,'' the institute said.
The KDI said companies will dismiss more workers than they will hire this year, dealing a blow to the government goal of creating 100,000 jobs.
In December, the nation lost 12,000 jobs from a year ago, the first annual job loss in five years, according to the National Statistical Office (NSO). It expects more tightening in the job market in coming months, as businesses downsize workforces to cut costs to cope with the increasingly pessimistic economic outlook.
The think tank said private consumption will expand 0.1 percent in 2009, down from an earlier projection of 2.2 percent, with exports declining 4.2 percent. Corporate facility investments will decrease 7.7 percent from last year, down from a 1.9 percent gain estimated in November.
The nation will post a $13.6 billion current account surplus this year, thanks to falling import prices of oil and other raw materials despite sluggish outbound shipments, the KDI said. The jobless rate is expected to rise to 3.7 percent from 3.2 percent last year, painting a bleak picture for the job market. Consumer prices will jump 2.6 percent, down sharply from a 4.7 percent increase in 2008.
Against unfavorable macroeconomic conditions at home and abroad, the state-run think tank suggested that the nation introduce a range of bold stimulus measures to mitigate the ongoing economic downturn, adding financially unsound businesses should be restructured preemptively to minimize a negative chain reaction of bankruptcies on the overall economy.
``Financial institutions should make every effort to increase capital to absorb non-performing loans as a result of increasing corporate bankruptcies down the road. The government should receive approval from the National Assembly and prepare other necessary steps to inject public funds into struggling banks and other financial firms,'' the KDI stressed.