2nd LD) S. Korea revises up 2009 growth outlook on improving

indicators
(ATTN: ADDS detailed economic plans, minister's comments from 16th para: TRIMS
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 up its
earlier forecast as signs emerged 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 it still reflects a sharp turnaround from a 2.2 percent advance for
last year. The outlook for 2010 remained the same as what was suggested 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 while briefing reporters on a semiannual
economic management plan he 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
these as reasons for 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 economy will lose around 100,000 to 150,000 jobs annually this year, it
added, offering a slightly more hopeful outlook than the ministry gave in April,
when it predicted losses 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 economy is expected to continue to make a marked improvement in the second
quarter as well but whether the rebound will continue even into the third quarter
remains uncertain due to such factors as rising oil and commodity prices. Also we
do not have the same fiscal leeway to support growth as we had in the first
half," he said.
The finance minister noted that his top priority in the second half is to create
jobs and stabilize the livelihood of working class citizens vulnerable to the
ongoing economic crisis, echoing President Lee's earlier emphasis on increasing
government support for workers and small shop owners.
As for growing concerns over a fiscal deficit amid the government-led stimulus
drive, meanwhile, the government plans to intensify efforts to balance the
country's budget in the mid term by solidifying its tax revenue base and spending
carefully.
"We will continue our efforts to reform the overall spending process ... At the
same time, we will work hard to expand our tax base by streamlining regulations
related to tax benefits for example," Yoon said.
In order to prepare for the post-crisis era, he emphasized the need to beef up
the nation's growth potential. The government will increase research and
development investment, bolstering eco-friendly industries and expanding free
trade with large economic blocs and resource-rich countries.
Touching on concerns that the nation's economy is exposed to ups and downs in the
global market due to its heavy dependence on exports, he said that the government
will accelerate its drive to nurture the service sector as part of efforts to
bolster domestic demand to better cushion outside shocks.
"An export-driven economic structure tends to be affected by outside factors,"
Yoon said. "Now those economies are required to change their economic paradigms
by expanding the share of domestic demand in preparation for a crisis stemming
from outside factors."
kokobj@yna.co.kr
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