Fears Grow Over Minus Economic Growth This Year

As business conditions worsen at home and abroad, forecasts for the Korean economy have plunged and fueled fears of negative growth this year.

The Korea Center for International Finance yesterday said the average growth forecast for the Korean economy this year according to nine global financial institutions, including Goldman Sachs and JPMorgan, in December was 0.8 percent.

Their forecast had been three percent in October and 1.2 percent in November.

Last month, UBS maintained its initial forecast of minus three percent for Korea this year announced in November. Nomura Holdings (minus two percent), HSBC (minus 0.6 percent) and Merrill Lynch (minus 0.2 percent) also expect Korea’s economy to decline in 2009.

Goldman Sachs greatly lowered its forecast for Korea’s economy from 3.9 percent to 1.8 percent in two months. Similarly, Standard Chartered Bank also slashed its forecast from 3.9 percent to 1.4 percent.

Domestic private think tanks have also lowered their forecasts for the Korean economy. LG Economic Research Institute halved its forecast from 3.6 percent to 1.8 percent and Korea Institute of Finance from 3.4 percent to 1.7 percent.

The Bank of Korea also expects difficulty in achieving its target growth of two percent in 2009 announced last month.

A central bank source said, “Since November, exports and imports have fallen significantly. Given that, Korea’s economic growth could fall more than three percent from the fourth quarter last year. It is also possible that the economy will see minus growth this year.”

The government, however, said it will stick to its growth forecast of around three percent released in December. A source from the Strategy and Finance Ministry said, “We have no plan to change the forecast. Economic conditions have aggravated faster than expected at home and abroad, but we will make an all-out effort to achieve the goal.”

jaeyuna@donga.com ceric@donga.com