By Kim Jae-kyoung
Staff Reporter
With growing pessimism over a global recession, Korea, which depends heavily on external trade, is expected to see its economic growth fall to as low as minus eight percent year-on-year in the first quarter of 2009.
Many economic think tanks at home and abroad have delivered pessimistic views on Asia's fourth largest economy, forecasting its gross domestic product (GDP) to contract by five to eight percent during the period, compared to a 5.3 percent contraction recorded in the first quarter of 1998, when the country was at the center of the 1997-1998 Asian financial crisis. In 1998, the economy shrank 7.9 percent in the second quarter, 8.1 percent in the third quarter and 6 percent in the fourth quarter.
Some institutes predict that the economy will not bottom out until next year, meaning that it will follow an L-shaped recovery path in which the country will remain in recession for a considerable period of time.
The Korea Economic Research Institute (KERI) plans to downgrade its 2009 growth outlook to minus 2-4 percent from an earlier projection of 2.4 percent.
``As the depth of the global recession is more severe than expected, Korea's exports have been heavily dented. The local economy will likely recover starting next year after hitting bottom in the fourth quarter,'' KERI said.
The institute said that in the first quarter, GDP growth may fall to minus 7 to 8 percent with the global recession deepening.
``The economy will contract between 4 and 5 percent in the current quarter from a year earlier and it could further deteriorate depending on economic conditions,'' said an economist from the Korea Development Institute.
Samsung Economic Research Institute (SERI) forecast the economy would shrink 3 percent between January and March, while LG Economic Research Institute predicts a minus 5 to 6 percent contraction.
The economy contracted 3.4 percent in the fourth quarter, the worst performance and the first contraction since the fourth quarter of 1998.
The prolonged economic downturn is feared to compel more companies to scale down investments and their workforce, forcing households to tighten their purse strings and dealing a blow to already-weak domestic demand.
Finance Minister Yoon Jeung-hyun recently said that the economy is expected to contract 2 percent this year.