S. Korea revises up 2009 growth outlook on improving indicators

(ATTN: REPLACES, ADDS finance minster's comments throughout)
By Koh Byung-joon
SEOUL, June 25 (Yonhap) -- South Korea's economy is expected to shrink 1.5
percent this year, the Seoul government predicted Thursday, revising upwards its
earlier forecast as signs emerge that a downturn is abating thanks to massive
state-led stimulus measures.
The government also forecast the nation's gross domestic product will rebound to
a 4 percent expansion in 2010, but added it will stick to its "expansionary"
economic policy as it is "premature" to say that the economy is making a full
recovery.
The 2009 growth projection is better than a 2 percent contraction predicted in
April, but still reflects a sharp downturn from a 2.2 percent advance for last
year. The outlook for 2010 remained unchanged from two months ago.
"Thanks to stabilizing financial markets and expansionary macroeconomic polices,
some indicators are showing signs of improvements," Finance Minister Yoon
Jeung-hyun told a press conference, unveiling his semiannual economic management
plan reported to President Lee Myung-bak earlier in the day.
"Unlike other countries, our economic growth turned positive in the first quarter
with a downturn easing and expectations growing for a recovery," he added, citing
the reasons behind the revision of the nation's annual growth outlook.
The latest assessment comes amid budding signs that the economy's worst downturn
in over a decade may be nearing an end following the global financial and
economic turbulence that started last summer.
To keep Asia's fourth-largest economy from going into a tailspin, the government
has been pushing to stimulate domestic demand by cutting taxes and expanding
fiscal spending, including a 28.4 trillion won extra budget.
The Bank of Korea, the nation's central bank, has for several months kept its key
interest rate at a record low of 2 percent in a bid to boost the slumping
economy.
South Korea managed to avert a technical recession in the first quarter by
growing 0.1 percent from three months earlier, after falling 5.1 percent in the
last quarter of 2008.
On Wednesday, the Organization for Economic Cooperation and Development said that
the South Korean economy will grow 3.5 percent next year after contracting 2.2
percent this year, making the fastest rebound among its 30 member countries.
The International Monetary Fund plans to upgrade its outlook for South Korea in a
report to be unveiled soon, its senior economist told a conference in Seoul on
the same day.
Despite growing optimism, the ministry underlined that a number of downside risks
remain, saying employment and corporate investment continue to be in slump as
companies suffer from low profitability and high debt ratios amid a protracted
global slowdown.
The ministry forecast that job markets will remain sluggish due to a hesitancy to
hire workers amid cloudy business outlooks.
The economy will lose around 100,000 to 150,000 jobs annually this year, it
added. That is a more hopeful outlook than the ministry gave in April, when it
predicted a cut of 150,000 positions.
Facility investment is expected to plunge 18 percent this year, while private
consumption will decline 1.8 percent compared with a 0.9 percent expansion a year
earlier.
The ministry predicted exports, South Korea's key growth engine, will contract 16
percent this year from a year earlier. As imports will likely decline further,
however, the ministry expected the nation's current account surplus could hit $25
billion for this year.
"It is still early to say that the rebound is in full-swing," the ministry said,
attributing its cautious stance to bleak business conditions overseas and
recently rising oil prices. South Korea is the world's fifth-largest oil
importer.
"We will keep our expansionary economic policy for the time being until the
economic recovery takes hold. Our macroeconomic policy stance will be adjusted in
line with the pace of an economic rebound," Yoon said.
The finance minister added that his top priority in the second half of this year
is to create jobs and stabilize the livelihood of ordinary people most vulnerable
to the ongoing economic crisis, echoing President Lee's earlier emphasis on
increasing government support for the working class and small shop owners.
As for growing concerns over a fiscal deficit amid the government-led stimulus
drive, the ministry said it will intensify efforts to balance the country's
budget in the mid term by solidifying its tax revenue base and spending
carefully.
It also emphasized the need to beef up the nation's growth potential to prepare
for the post-crisis era. It recommended increasing research and development
investment, making inroads into eco-friendly industries and expanding free trade
with large economic blocs and resource-rich countries.
kokobj@yna.co.kr
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