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The central bank of Korea said on Thursday that South Korea's export-dependent economy experienced its biggest contraction in nearly 11 years in the fourth quarter of last year, as the global economic slump cooled demand at home and abroad.
The country's gross domestic product contracted 3.4 percent in the October-December period from a year earlier, sinking from a 3.8 percent expansion in the previous quarter on a year-on-year basis.
It was the first on-year decline since the 1998 fourth quarter when GDP, the broadest measure of economic performance, fell 6 percent at the height of the Asian financial crisis.
From the previous quarter its GDP shrank 5.6 percent in the three months, compared with a 0.5 percent growth in the third quarter. It marked the worst on-quarter performance since the first quarter of 1998 when it fell 7.8 percent.
For all of 2008 South Korea's economy grew 2.5 percent, the worst performance since a 6.9 percent contraction in 1998, the central bank said. South Korea grew 5.1 percent in 2007, 5 percent in 2006 and 4.2 percent in 2005 following a 4.7 percent gain in 2004.
Choi Chun-sin, director general of the Bank of Korea's economic statistics department, said he saw a high possibility that economic growth in 2009 will miss the bank's earlier 2 percent estimate.
But the country's top state research agency has painted a much gloomier picture, saying that the South Korean economy is expected to grow merely 0.7 percent this year, revising its forecast from a 3.3 percent growth set in November 2007.
The Korea Development Institute forecasts the economy to contract 2.6 percent on-year in the first half of this year before rebounding to a 3.8 percent expansion in the second half, which will result in a 0.7 percent growth for the whole year.
The South Korean economy "is slipping into a recession phase recently on accelerating contraction of consumption and anemic export growth, hit by a faster-than-expected global downturn," the institute said in a statement.
The KDI said consumption would shrink 3.2 percent in the first half before expanding 3.5 percent in the next half. Exports, the backbone of South Korea's economy, is forecast to decline 4.2 percent this year, with first-half overseas shipments expected to plunge by 10.7 percent from a year earlier. In 2008, the nation's exports gained 6.2 percent.
South Korea is expected to post a current account surplus of US$13.6 billion this year in a turnaround from last year's deficit of US$6 billion, according to the institute. It posted a trade deficit of US$12.9 billion last year, compared with a surplus of US$14.6 billion the year before. It was the first trade deficit since the US$8.4 billion shortfall in 1997.
The decline in the country's exports was faster in January. According to the Korea Customs Service, exports shrank about 30 percent in the first 20 days of January. Local companies exported an estimated US$12.47 billion worth of products during the period, compared with $17.54 billion a year earlier. Imports also fell 22.5 percent to US$17.05 billion.
The situation is likely to worsen later this year as the country faces shrinking markets for its automobiles and electronics products as global economic slowdown prompts consumers to tighten their purse strings.
In a gloomier outlook, Fitch Ratings said South Korea's economy would shrink 2.4 percent in 2009, the first growth contraction in more than a decade, due to fallout from the global economic slowdown.
"Over the past year, economic growth forecasts for Asia have fallen steadily under the impact of the global slowdown," it said in a statement released on Wednesday. The Switzerland-based UBS and Merrily Lynch forecast that the South Korean economy would post its first minus growth since the Asian financial crisis.
The grim outlooks are likely to add pressure on the country's newly formed economic team to take more drastic measures to shield Asia's fourth-biggest economy from the worst global economic turmoil in decades.
Yoon Jeung-hyun, who was tapped by President Lee Myung-bak early this week to become the chief economic policymaker as minister of strategy and finance, vowed to make all-out national efforts to keep the economy from sliding into a recession.
Yoon is the "right person to gain the confidence of the markets for overcoming the economic crisis," the presidential office said in a statement, referring to public confidence damaged by the previous economic team led by Kang Man-soo, who has been criticized for his "flip-flop" policies.
Lee has also replaced the chief presidential secretary for economy and head of the financial watchdog, part of a government shakeup focused on "reorganizing the government's economic team that will carry out the most urgent, pressing task of reviving the country's economy," according to the presidential office.
