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Has the Korean Economy Hit Bottom?

Posted June. 05, 2009 08:06,   


The Organization for Economic Cooperation and Development says Korea will be its first member country to see economic recovery. As production and consumption indexes have shown signs of improvement, speculation is rising that the Korean economy has bottomed out.

In a recent report, the organization said the composite leading indicator for Korea in March was 96.8, up from 94.6 in February and the largest increase among 26 member countries surveyed in April.

Korea’s indicator rose 1.9 points in February from January, and the organization predicted that Korea will see the fastest recovery among member countries.

The indicator predicts economic prospects over the next six months after analyzing factors such as industrial activity, real estate prices, financial and monetary conditions, and GDP trends. Any increase above 100 is classified as an expansion, while an increase below 100 qualifies as a recovery.

A rebound from below 100 to above means recovery from recession.

The organization predicted a delay in global economic recovery as the average indicator for 26 member countries in March dropped 0.1 point from the previous month. The average for the Group of Seven nations – the United States, Japan, the United Kingdom, France, Germany, Italy and Canada – dropped 0.3 point from the previous month.

The Korean government, however, remains cautious over this forecast. The Strategy and Finance Ministry said in a report released yesterday, “It is too early to be optimistic because of weak economic recovery and fears over uncertainty in the financial market and rising international oil prices.”

The ministry also said it will maintain expansionist macroeconomic policies while conducting corporate and financial restructuring on a consistent basis.

The Korea Development Institute also expressed reservation over the organization’s prediction, saying in an economic report, “Though certain indexes are improving, it is difficult to say the economy is out of recession in general.”

A ministry official added, “Since the OECD, which assesses the economy mostly based upon indexes, does not properly factor in the effects of budget spending, this can be deceptive. It is not the right time to discuss whether the economy has bottomed out because oil and commodity prices are soaring and nobody knows how things will develop in the wake of North Korea’s nuclear test.”