`Korean Economy to Contract 2.4 Pct. This Year`

Korea’s economy will start recovering in the latter half of next year but suffer minus growth of 2.4 percent this year, the Bank of Korea said yesterday.

The economy will bottom out in the second or third quarter this year, but the slow pace will require more than a year to feel the effects of the recovery, the bank said.

In a report on its revised economic outlook for 2009, it predicted minus growth of 2.4 percent this year with a 4.2 percent contraction in the first half and a 0.6 percent decline in the second.

The bank downgraded this year`s growth projection 4.4 percentage points from its previous forecast of two percent in December last year. The figure is also 0.5 percentage point lower than the government’s last projection of growth of minus 1.9 percent.

If the economy declines as the bank predicts, Korea will suffer its worst economic performance since 1998 (minus 6.9 percent) when the country was hit by the Asian-wide financial crisis.

The Korean economy will grow 3.5 percent next year, but the impact of growth will not be significant because the expansion will come on the heels of negative growth, the bank said.

Kim Jae-cheon, in charge of economic surveys at the bank, said, “The economy will hit bottom in the second or third quarter of the year, but rapid revival is not expected. So the effect of the bottoming out will be minimal.”

As fast recovery of the global financial system is unlikely for the time being, the economy will find it difficult to regain its growth momentum over the short term, plunging almost all domestic industries into a deep slump, the bank said.

Domestic consumption will decline 2.6 percent and facility investment will plunge 18 percent. This year will also see exports drop 9.9 percent and imports fall 10.9 percent.

The sole bright spot will be construction, whose investment will increase 1.8 percent from minus 2.1 percent last year thanks to more state investment in social infrastructure.

Negative economic growth is expected to deal a huge blow to employment, with the country to lose 130,000 jobs this year. “Without the government stimulus package, 300,000 jobs will disappear. But the figure will fall to 130,000 thanks to the supplementary budget, which will create 170,000 new jobs,” Kim said.

jaeyuna@donga.com