South Korea State Agency Cuts 2009 Growth Forecast

South Korea's economy will grow 0.7 percent this year, the slowest since the Asian financial crisis a decade ago, hit by the deepening global recession, the country's top government research agency said on Wednesday.

AP

The Korea Development Institute's (KDI) latest forecast was a sharp downgrade from its previous projection for 3.3 percent growth set in November and stood below the central bank's 2 percent growth forecast made in December.

"The economy is seen entering a recession phase on weaker domestic demand and as the impact of a sharp slowdown in the global economy is biting into exports," the state-run agency said in a statement.

The central bank in December estimated that Asia's fourth-largest economy would post 3.7 percent growth for 2008 after a 5 percent gain in 2007.

An increasing number of private-sector experts expect South Korea's economy to contract by as much as 3 percent this year, with ratings agency Standard & Poor's on Wednesday setting its growth forecast at zero.

S&P's credit analyst Kim Eng Tan also warned in an email interview with Reuters that its growth forecast for South Korea's economy could still be cut into negative territory, saying its 
forecast carried "significant uncertainty".

As ripples from global recession spread in Asia, the Singapore government slashed its economic growth forecast for 2009 to as low as minus 5 percent on Wednesday from the previous
projection for as low as minus 2 percent.

South Korea's economy has expanded for the past 10 successive years after shrinking a real 7.9 percent in 1998 in the aftermath of the Asian financial crisis, which had pushed the country to  the brink of sovereign insolvency.

Private consumption, which generates more than half of South Korea's annual gross domestic product, will rise a mere 0.1 percent this year, the KDI said, compared to the previous 2.2
percent gain forecast.

The revised forecasts came a day before the Bank of Korea is due to release its first official GDP growth estimate for the fourth quarter of 2008 on Thursday.

Economists polled by Reuters estimated South Korea's GDP to have contracted a seasonally adjusted 2.7 percent in the October-December period from the third quarter, which would mark the biggest quarterly loss since early 1998.

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South Korea's central bank has slashed interest rates by a total 2.75 percentage points and the government has offered around $100 billion worth of fiscal stimulus measures over the past few months to stop the local economy sliding into recession.

Meanwhile, the KDI recommended the local financial authorities to prepare contingency plans in advance aimed at preventing spreading problems at local banks.

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