IMF: Korean Economy to Bottom Out in 1st Qtr.

The Korean economy is likely to bottom out in the first quarter next year and then gradually recover,” an International Monetary Fund official said yesterday.

In a speech at Lotte Hotel in Seoul hosted by the Institute for Global Economics, Subir Lall, the division chief of the International Monetary Fund’s Asia-Pacific department, said Korea’s economy is expected to recover in the second half next year as the current account posts a surplus and inflationary pressure weakens.

The Korean economy, buffeted by the global meltdown, will grow just two percent, lower than earlier predictions made this year, he said.

Lall also cited the strength of Korea’s financial fundamentals and the stability of its foreign debt conditions, but warned against the “feedback” phenomenon in which the financial crisis has a knock-on effect on the real economy.

On the nation’s dwindling foreign reserves and the weak won, he said, Korea has been significantly stable when it comes to foreign debts. It has the capacity to deal with fluctuating exchange rates. The weak won is the result of reduction of liabilities arising from the global liquidity crisis.

On negative outlooks for the Korean economy by certain foreign news media, he said media could exaggerate the situation to draw readers’ attention,” adding, “To prevent this, the IMF has upgraded its reports and forecast on Korea each month.”

In the wake of the worsening global economy, the IMF last month lowered its growth forecast for Korea from 3.5 percent to two percent for 2009. It plans to release new forecasts in January and April.

Lall arrived Seoul last Thursday for regular consultations between the Washington-based organization and the Korean government.

jmpark@donga.com