S. Korea feared to miss growth target on financial rout

SEOUL, Aug. 9 (Yonhap) -- The recent financial turmoil sparked by growing debt problems in Europe and the U.S. may threaten South Korean exports and dampen consumer confidence here, probably slowing economic expansion, experts said Tuesday.
South Korea's financial markets have been rattled by the downgrade of the U.S. credit rating, and escalating concerns over a slowdown in the U.S. economy and debt problems in the eurozone.
The country's key stock index, the KOSPI, plunged around 10 percent during the five trading sessions, as foreign investors curtailed their exposures to local shares.
Experts said the recent developments in the financial market would have a negative impact on Asia's fourth-largest economy, making its growth fall short of 4 percent. The South Korean government is targeting a 4.5 percent growth for the year.
"Any sharp slowdown in the U.S. economy is unlikely, but we need to check external conditions more thoroughly to judge whether the South Korean economy will go smooth or not this year," said Shin Seok-ha, a researcher at the Korea Development Institute.
The direct impact on the South Korean economy from the U.S. credit rating downgrade itself is expected to be limited. Still, severe volatility of the financial markets, particularly a sustained drop in share prices, would have a negative impact on the economy and force both consumers and businesses to hunker down, they said.
The steep decline in share prices could have a psychological impact on households, causing them to cut back on spending, and force businesses to defer hiring and spending, they added.
"The South Korean economy is still driven by exports, and its economic expansion may be affected by recent developments in major economies and financial routs," said Kwon Sun-woo, an economist at the Samsung Economic Research Institute.
A series of economic data from the U.S. is raising concerns that the world's largest economy is losing its momentum for a recovery and likely facing another recession.
The U.S. economy expanded at less than a 1 percent annual rate in the first half of the year, and consumer spending there dropped in June for the first time in nearly two years, according to the latest data, which underscored the fragile state of the economy.
The South Korean economy, heavily dependent on overseas demand, grew at the slowest pace in six months in the second quarter of the year, as export gains sharply eased amid the global economic uncertainty.
The economy grew 0.8 percent in the April-June period, slowing from a 1.3 percent on-quarter expansion tallied in the first quarter.
But some experts say the South Korean economy will grow more than 4 percent this year on the back of solid demand at home and abroad, although it is dogged by growing inflationary pressure.
"Exports are showing a solid growth so far this year, and domestic demand is also sound," said Kim Jong-soo, a researcher at NH Investment & Securities. "The economic growth of above 4 percent is attainable," he said.