S. Korean economy to shrink 2 pct in 2009: think tank

(ATTN: UPDATES with more details in para 13; ADDS new details in paras 7-8)
By Lee Joon-seung

SEOUL, June 24 (Yonhap) -- South Korea's economic growth is expected to slip into
negative territory this year despite government efforts to reduce the fallout
from the worldwide slump, a state-run think tank said Wednesday.
The Korea Institute for Industrial Economics and Trade (KIET) said in a report
the economy will likely contract 2 percent on-year, compared with a 2.2 percent
gain in 2008.
"Economic stimulus programs such as greater government spending and support for
the construction sector should contribute to gains in the second half, although
consumption and business investments are expected to remain weak throughout the
year," the KIET report said.
It predicted that domestic consumption and corporate investment could fall 2
percent and 15 percent, respectively, this year compared with 2008 and that both
exports and imports will be hit hard as businesses and consumers around the globe
cut back on spending.
South Korea's exports, which make up the bulk of its economy, may decline 18.5
percent annually by year's end to US$344 billion. The institute predicted imports
will plunge 26.6 percent to $319.6 billion, leaving the country with a $24.5
billion trade surplus -- up from a deficit of $13.1 billion from the year before.
The current account surplus may reach $23.6 billion, KIET said.
Government-funded large scale building projects could buoy investment in the
construction sector by 2.4 percent from minus 2.1 percent in 2008, according to
the report.
The forecast is based on economic growth among the world's industrialized
economies, which are projected to contract 2-3 percent this year, with the price
of the benchmark Dubai crude hovering at US$60 per barrel and the Korean won's
exchange rate standing at an average 1,280 won to the U.S. dollar.
The growth prediction is better than numbers released by the Bank of Korea and
Korea Development Institute, which forecast the nation's gross domestic product
would backtrack 2.4 percent and 2.3 percent, respectively, this year.
KIET also said that of the country's 10 leading industries, only ship building
and petrochemicals are expected to post positive growth, with a 24.5 percent and
1.8 percent boost in output this year, respectively.
Semiconductors, helped by a rise in prices, are expected to post negative growth
of just 1.6 percent on-year from a plunge of 9.6 percent in 2008. Autos, general
machinery, steel, consumer electronics and display panels will likely witness
production losses of 10 to 17 percent this year vis-a-vis 2008, the report said.
Textiles and information technology products are expected to post annual losses
of little over 6 percent.
KIET, which is under the Ministry of Knowledge Economy, said overall economic and
industrial conditions are showing some positive signs and that they could begin
to improve after July, assuming favorable exchange rates. The government's
economic stimulus programs, however, may lose steam in the long run.
It pointed out that with the world economy still struggling to cope with the
U.S.-born financial crisis and steady gains in crude oil prices there will be a
limit to the amount of growth that South Korea can pull off this year.
yonngong@yna.co.kr
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