Korea‘s GDP Growth At 3%, Foreign Investment Banks Downgrade Prospects

Foreign investment banks have downgraded Korea‘s annual economic growth outlook to 3% amidst rising concern that the growth rate will drop to 2% in the second quarter of this year.

Credit Suisse First Boston lowered Korea‘s economic growth forecast to 3.1% from 4% yesterday. Economic growth refers to an increase in real Gross Domestic Product.

CSFB said that the first quarter GDP growth rate of 3.7% was close to the original forecast level, but private consumption in the second quarter would go worse than expected.

Having recently adjusted Korea‘s economic growth prospects from 3.5% to 3% considering the impact of SARS (Severe Acute Respiratory Syndrome), Morgan Stanley predicted a 1 to 2 % reduction in Korea’s exports to SARS-stricken regions, such as mainland China and Hong Kong on May 23.

At the same time, Morgan Stanley advised a revised supplementary budget and monetary expansion measures for a soft-landing of the nation‘s economy.

Merrill Lynch, which downgraded Korea‘s economic growth prospects from 3.5% to 3.3% on May 22, predicted that local private consumption would begin a slow recovery in the second half of this year despite liquidity concerns over card issuers.

In the meantime, exports, which have propped up the nation‘s growth when consumption and facility investment shrunk, will have a difficult time achieving 3% level growth in the second quarter of the year as it has suffered a sharp drop this month.

According to the Bank of Korea (BOK), for 20 days in May, exports have shrunk 9.2% over the previous year to register at 7.302 billion dollars, while imports have grown 8.9% at 8.42 billion dollars. BOK attributed the monthly export decrease to 2 to 3 more days’ loss from the total number of working days than that for last year, along with other impacts due to SARS, logistics disruption, and global economic recession.

Hyundai Research Institute explained that during the first quarter of this year, Korea‘s exports to China have grown 60.8% compared with the same period last year, but the growth rate has fallen sharply this April to stand at 38.6%.

An official at the Bank of Korea said: “Export performance was not good in June last year when the World Cup was hosted and Hyundai Motor workers went on strike, which means that the export growth rate in June of this year will be high”, and added, “it is yet to be seen whether the growth rate in the second quarter will fall to the 2% level.”

Kwu-Jin Lim Cheol-Yong Lee mhjh22@donga.com lcy@donga.com