Financial crisis may cause growth to drop to 3 pct range in 2009: think tanks

By Lee Joon-seung
SEOUL, Oct. 8 (Yonhap) -- South Korea's economic growth may dip to the 3 percent level in 2009 as the current financial crisis causes consumers and businesses around the world to cut back on purchasing and investments, local think tanks said Wednesday.

According to economic institutes like the Korea Economic Research Institute
(KERI), the Lehman Brothers debacle and concerns over the health of other U.S.
investment banks are rapidly drying up liquidity and making it likely that the
global economy will remain mired in a slump for the near future.
A weak global economy is bad news for South Korea, which relies heavily on
exports to fuel growth and buy necessities from abroad.
KERI, set up under the Federation of Korean Industries, predicted growth to fall
off to around 3.8 percent in the new year, but said this may go up to 4.2 percent
if Seoul is able to implement broad tax cut measures and pushes for deregulation.
The forecast is generally shared by other economic research bodies that said mid
3 percent to lower 4 percent growth may be reached in 2009.
If GDP growth falls to 3 percent levels it will be the lowest since the 3.1
percent tallied for 2003.
In the past five years, the South Korean economy grew by an average 4.42 percent,
with 5.1 percent and 5.0 percent being reached in 2006 and 2007 respectively.
They also concurred that recovery may only be possible after the second half of
next year.
"The present uncertainties in the financial sector are starting to affect the
overall market," said Lee Jae-joon, a researcher at the state-run Korea
development Institute.
"Much will depend on exports going to the developing markets and the ability of
these economies to maintain their present growth momentum," he said.
South Korea exports 60-70 percent of its goods to developing economies, including
China and India.
Others like Oh Moon-suk at LG Economic Research Institute (LGERI) said while some
estimates forecasting growth to fall to mid 3 percent levels were overly
pessimistic, recent developments are all causing revisions to growth forecasts.
The senior economist said that LGERI is "open-minded" about the prospect of South
Korea's economy falling to 3 percent levels and carefully looking at all
possibilities.
The private think tanks originally said growth of 4 percent was possible for 2009.
Economists, in addition, said that while the drop in crude oil prices will help
the balance of trade, that has fallen to over $14 billion in the red as of last
month, there is a risk that oil rich Middle East countries that have become major
customers of South Korean goods will cut back.
Besides external conditions, analyst said that weak domestic consumption and
industrial production have started to head downhill.
Industrial output shipments declined 1.3 percent annually in August, marking the
first time in 11 months that the indicator posted minus growth.
Consumer sales also edged up a mere 1,5 percent in the cited month from 3.9
percent in July with people staying clear of durable goods like cars and
electronic goods.
The stock market and foreign exchange rates have taken a beating that spells
trouble down the road.
A weaker Korean won versus the dollar may make locally made goods cheaper abroad,
but could exert inflationary pressure that hurts purchasing power.
A drop in stock prices will hurt consumption with studies showing a 1 percent
drop in the bourse causing consumer demand to dip 0.03 percent.
Related to the gloomy predictions, government policymakers have started to hint
that 5 percent growth target set for last year may have to be readjusted.
The Ministry of Strategy and Finance told lawamkers during a parliamentary audit
earlier this week that growth estimates for next year did not take into account
the Lehman Brothers fallout and recent uncertainties.
yonngong@yna.co.kr
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