Global financial crisis taking toll on Korean economy: think tank

SEOUL, Oct. 7 (Yonhap) -- Mounting global financial troubles are taking their toll on South Korean, a state-run think tank said Tuesday, adding that Asia's fourth-largest economy is showing clear signs of slowing.

In a monthly economic report, the Korea Development Institute (KDI) said
industrial production growth plunged to a mere 1.9 percent in August from the 8.6
percent tallied for the month before.
The think tank said service sector output also fell from 3.9 percent to 1.6
percent in the one month period, while both consumer spending and facility
investments remained sluggish overall.
"The general slowdown that began last year has taken a turn for the worse and has
started to clearly affect all sectors, including large businesses," the findings
said.
The report said that while exports continued to increase by double digits, such
gains were offset by a surge in local demand for raw materials. South Korea's
trade deficit surpassed the US$14 billion mark as of September.
The ballooning imbalance in trade along with the record high current account
deficit has affected the foreign exchange market, causing the Korean won to slide
against the U.S. greenback.
A weaker won makes local products cheaper abroad but raises the cost of imports,
exerting inflationary pressure.
The KDI's report added that the financial crisis, which stemmed from bad housing
loans in the United States and the collapse of investment giant Lehman Brothers
Holdings Inc., is adversely affecting interest rates and the stock market,
further dampening consumer and business sentiments.
Such developments have increased risk, the institute said, translating into more
costs for businesses.
The report added that the U.S. government's recent bailout measure has been so
far ineffective, casting shadows of doubt in industrialized economies, which
could potentially hurt South Korea's efforts to make a comeback next year.
yonngong@yna.co.kr
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