Korea`s Economic Growth for 2003 Risked at 23-Year Low

Forecasts of the worst economic growth for Korea in 23 years, except for the year of 1998, are coming on after another.

As the pessimism was presented by renowned credit rating firms at home and abroad, it became more likely that the nation`s competitiveness as well as its credibility would be damaged.

British Fitch IBCA, one of the world`s top three credit rating firms, released a report yesterday, in which Korea`s economic growth rate for this year was forecast at less than 2%.

This became the first for an international institution, whose report can influence a nation`s credit rating, to present less than a 1% of economic growth for this year.

According to the analysis of Fitch IBCA, domestic problems including labor disputes and unstable financial markets, combined with geopolitical risks, such as North Korea`s nuclear threats have weakened confidence of consumers and investors, thereby putting the Korean economy in recession.

The Bank of Korea Governor Park, Seung also said that a 3% economic growth seemed to be impossible to achieve in his speech at a meeting of the financial consultative council, where heads of 11 commercial and government-sponsored banks attended.

“The nation`s economy was formerly thought to become better in the third quarter of this year, but a sign of recovery has not been found yet”, said Governor Park, adding in concerns, “The sluggish consumption as well as staggered investment and industrial output are problematic. Interest rate cuts did not lead to an increase in cash flows in markets nor in investment demand.”

The Bank of Korea plans to review its outlook on the nation`s economic growth for this year before the opening of the Monetary Policy Committee meeting, scheduled in next month.

Most private economic institutes of the nation are also releasing the negative outlook of a meager 2% economic growth for 2003.

Samsung Economic Research Institute (SERI) readjusted its prospect on the economic growth rate for this year to the upper end of 2% level. At the same time, LG Economic Research Institute (LGERI) along with the Korea Economic Research Institute (KERI) readjusted their forecasts downward to 2.8% and 2.7%, respectively.

Oh, Moon-suk, Managing Director of LGERI noted, “We lowered our economic forecasts based upon the negatively expected factors including disrupted industrial outputs due to damages from the typhoon, Mae-mi(meaning a cicada) as well as the lean crop in the wake of deficient daylight during summer.” He went on to say, “Yet the Korean economy grow higher next year than the current year when the damaged areas and production levels are recovered.”

A drop of the Korean economy`s annual growth rate to below 3% level will record the lowest growth since 1980, except for 1998, when the nation`s economy, hit by the unprecedented financial crisis, shrank by 6.7%.

Korea is the only nation this year, which has not recovered from the recession, at a time when other economies including the U.S. and Japan are rebounding in global recovery. Accordingly, experts interpret the developments as that Korea` growth engine has broken out.

Joong-Hyun Park Ki-Jeong Ko sanjuck@donga.com koh@donga.com