(News Focus) Indicators hint at economic rebound, but experts remain cautious

SEOUL, April 2 (Yonhap) -- Hard-hit by external shocks from the outbreak of a
credit crisis in the U.S. last summer, South Korea's economy has been in a free
fall, fast lapsing into what would be the nation's first recession in more than a
decade.
Falling exports, sluggish consumption and steep reductions in corporate
investment and employment have led many experts to think that the economy will
take longer than expected to make a meaningful recovery from the current
downturn.
However, some indicators are starting to show signs of an improvement, raising
hopes the economy might be bottoming out, according to observers. Adding to the
upbeat mood, financial markets are stabilizing as foreigners reduce their risk
aversion and increase investment in the domestic stock and bond markets.
"The crisis was sparked as global money flows froze due to deepening financial
instability. This resulted in spiking inventories and trimmed overall industrial
activities," said Ko You-sun, an analyst at Daewoo Securities. "As the financial
markets gain stability, market sentiment is also getting a boost."
Economic indicators had been going from bad to worse since the collapse of Lehman
Brothers Holdings Inc. in mid-September, but with the emergence of some
better-than-expected readings the situation somewhat appears to be reversing,
according to recent government data.
On Monday, the Bank of Korea said the nation's account surplus reached US$3.68
billion in February, a turnaround from a $1.64 billion deficit the previous
month.
The trade surplus reached a record $4.6 billion in March as import declines
surpassed contractions in exports. A decline in industrial output eased to 10.3
percent in February after a 25.5 percent drop the previous month, according to
separate government data.
Financial markets also seemed to be stabilizing, with the local currency and
stock markets gaining ground. The nation's benchmark KOSPI index rose 13.5
percent last month alone as foreign investors bought a net 1.2 trillion won worth
of local shares.
In an interview with Yonhap News Agency, Hyun Oh-seok, the head of the state-run
think tank Korea Development Institute, said that the economy is currently
"accumulating energy" before staging a turnaround. He expected a rebound in the
second half of this year "in terms of indicators."
However, many experts still remain cautious, and point out there is much
uncertainty lingering over the economy, which depends heavily on external
markets.
"Sentiment is surely turning optimistic thanks to better-than-expected economic
indicators," said Lee Sun-yup, an analyst at Goodmorning Shinhan Securities.
"However, take a close look at the figures and you notice that it will take more
time to see a meaningful rebound. The trade surplus was due to import declines,
not export growth. Industrial output numbers also temporarily improved as
companies had to replenish inventories, not because consumption spiked," he
added.
Indeed, a number of downbeat indicators continue to weigh on the economy,
according to government data.
Exports, which accounted for 60 percent of the nation's gross domestic product,
declined 21.2 percent in March from a year earlier, after falling 18.1 percent
the previous month. This marked the fourth consecutive month of double-digit
contractions in overseas shipments, the government said.
Facility investment also remains in a slump as companies are reluctant to spend
for fear of a protracted economic downturn. Investment contracted 21.2 percent in
February from a year earlier, marking the third straight month that it shrank
more than 20 percent.
The labor market is yet another drag on the economy. Unemployment jumped to a
four-year high of 3.9 percent in February with over 140,000 jobs eliminated from
payrolls compared with a year earlier. The job loss was the steepest since
September 2003.
In the face of such grim figures, the government is stepping up its efforts to
revive the economy. Last week, it endorsed a record 28.9-trillion won extra
budget aimed at creating jobs and otherwise stimulating economic activity.
Finance Minister Yoon Jeung-hyun recently said that "many challenges" lie ahead
for the nation's economy, citing higher unemployment, sluggish domestic demand
and investment. He emphasized the need for the government to play a bigger role
in getting the economy back on track.
South Korea's economy grew just 2.2 percent last year and the government has
forecast a 2 percent contraction for 2009, estimating a total of 200,000 jobs
will be lost. The International Monetary Fund said in its latest report that the
world economy could contract as much as 1 percent this year.
Analysts say the key to a full-blown recovery depends on how fast the U.S.
carries out corporate restructuring measures in the auto and financial sectors
and brings overall market stability, as exports still remain a key growth engine
of South Korea's economy.
"Sentiment is good but global demand is not rebounding," said Ko of Daewoo
Securities. "Still, the worst seems to be drawing to an end and we expect the
economy to start making a U-shaped, slow but steady turnaround from the second
quarter."
kokobj@yna.co.kr
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