Yonhap Interview) S. Korea's economy to shrink 2 pct in 2009: Moody's

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SEOUL, Jan. 28 (Yonhap) -- South Korea's economy will shrink 2 percent this year,
Moody's Investors Service forecast Wednesday, joining a growing number of
research groups in expecting the first recession in more than a decade for the
Asian economic powerhouse.

The global ratings agency forecast 2 percent growth for South Korea in November.
The latest prediction is far lower than the government's growth target of 3
percent for this year and compares with the previous year's 2.5 percent
expansion.
"The early prediction was made on data and trends evident as of September 2009.
The forecast was a bit on the pessimistic side. Nonetheless, since then the
global credit crunch became severe and the global recession deepened," Tom Byrne,
a senior vice president at the Moody's Asia-Middle East regional credit office,
said in an e-mail interview with Yonhap News Agency.
"We now think real gross domestic product (GDP) growth will likely contract by
about 2 percent in 2009. This assumes that global economic conditions regain some
stability in the second half of 2009. If not, the risks will be on the downside,"
he noted.
He didn't mention his stance on the nation's credit ratings. Moody's sovereign
rating for South Korea is currently A2 with a stable outlook.
Moody's downgrade comes after a growing number of think tanks and research groups
rushed to trim their 2009 projections for South Korea's economy, citing slumping
exports and domestic demand, hit by the global slowdown.
The Switzerland-based UBS predicted the economy to shrink 3 percent for this
year, the worst performance forecast by a foreign investment bank. Fitch Ratings,
another global ratings agency, expected a 2.4 percent contraction, while Standard
& Poor's recently lowered its outlook to zero percent.
The bleak outlooks are mostly based on a faster-than-expected slowdown in exports
with less overseas demand for Korean goods. According to government data,
overseas shipments plunged 17.4 percent in December from a year earlier.
The job market also remained stagnant, making things worse for the government
which is striving to bolster domestic demand with a raft of stimulus measures,
including tax cuts and fiscal spending.
Last month, the economy saw the first job contraction in more than five years as
companies scaled back recruitment for fear of worsening economic conditions.
Industrial output slumped by the sharpest ever rate in November since the nation
compiled related data in 1970.
"Given the bleak outlook for the U.S., Japanese and EU economies, not to mention
the sharp slowdown in China's economic growth prospects, Korean exports will
contract more sharply than we thought back in September and early October," Byrne
said.
"Korea is facing similar problems as faced elsewhere, deteriorating consumer
confidence and retrenchment in business employment and investment. However, these
obstacles will be more difficult to overcome," he added.
Faced with the worst economic crisis since the nation was hit by the 1997-98
Asian financial meltdown, President Lee Myung-bak recently replaced his economic
team in a partial cabinet reshuffle, a move which came in less than a year after
he took office.
Yoon Jeung-hyun, the former head of the nation's financial watchdog was appointed
as the nation's new finance minister, replacing Kang Man-soo who had been under
pressure to resign for what critics have called his "misguided" economic and
financial measures.
Byrne said that the new finance minister and his economic staff should step up
cooperation with international community to tackle the global economic crisis.
"The top priority of every senior economic official in the major economies of the
world is to ensure a vigorous and convincing response to the global economic
crisis," he said. "International coordination will be vital, too, for pulling the
world out of recession."
kokobj@yna.co.kr
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