Forecasts for Korean Economic Growth Slashed

Financial institutions at home and abroad are painting a grim picture of Korea’s economic growth this year.

JPMorgan Chase yesterday cut its 2009 forecast to minus 2.5 percent, down from a projection of 0.5 percent made Jan. 9.

“Korea’s economy contracted in the fourth quarter last year not only because of sapping demand but also because of declining facility investment and adjustments in stock,” a source at the financial services provider said.

“As manufacturers seek to reduce stock, an action which will affect the service sector, growth in this quarter will remain in negative territory.”

JPMorgan also forecast that the Bank of Korea will lower its key interest rate half a percentage point next month.

RBC Capital Markets of Canada said, “Economic conditions will further aggravate this year. Korea will see its economy shrink in the first half of this year and recover slowly in the second quarter, with annual growth reaching a meager 0.8 percent.”

On last year’s fourth quarter, RBC said, “With the first negative growth since the Asian financial crisis of 1997, economic conditions are much worse than expected. The faster-than-expected slowdown well illustrates how heavy a blow the global economic downturn has dealt to the Asian economy.”

Korean securities companies have also cut their growth forecasts. Hyundai Securities predicted negative growth of 0.7 percent this year, down from a forecast of 2.1 percent made a month ago.

Hana Daetoo Securities has maintained its initial growth forecast of 0.6 percent, but did not rule out the possibility of minus growth. Korea Investment & Securities lowered its forecast to one percent from 2.9 percent and Daewoo Securities cut its outlook to 0.2 percent from 1.9 percent.

An official at the Strategy and Finance Ministry said, “We closely watch each organization’s growth forecast and the real economy, but we have no plan to release a revised prediction now.”

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