News Room - Business/Economics

Posted on 03 Dec 2008

GDP growth slows to 0.5% in 3rd quarter (Korea)

The Korean economy is deteriorating on all fronts, with income growth hitting its lowest level since the Asian financial crisis 11 years ago and the growth of gross domestic product slowing.

The country's top policymakers and economists warn that the situation will get worse until the latter half of next year, when they expect the economy to pick up.

The Bank of Korea said yesterday that economic growth last quarter was slower than initially estimated.

Gross domestic product grew a seasonally adjusted 0.5 percent in the July-September period, below the central bank's earlier estimate of 0.6 percent. That is the slowest since the third quarter of 2004.

"The impact of the global financial crisis is spilling over into the real economy faster than expected, hurting exports. The pace of economic slowdown is accelerating," Jung Yung-taek, a BOK official, said.

The GDP growth during the first two quarters of 2008 stood at 0.8 percent.

From a year earlier, the economy expanded 3.8 percent in the third quarter, also slower than the central bank's previous estimate of 3.9 percent. Exports fell 1.9 percent, compared with the previously projected 1.8 percent.

The BOK data also showed that gross national income, a gauge of people's purchasing power, shrank 3.7 percent from a year earlier, the worst level since a 9.6 percent contraction in the first half of 1998.

But the toughest days are still to come, President Lee Myung-bak warned yesterday.

"The first half of 2009 is likely to be the toughest time for the Korean economy, as the world economy falters," he said in a speech at a ceremony to mark Trade Day in Seoul. "We need extraordinary measures to deal with the situation."

Echoing the president's view, Deputy Finance Minister Noh Dae-lae said that the economy would reach a bottom in the first half of 2009.

"Given recent factors, it will be difficult for the economy to achieve 4 percent growth," he said on a radio program.

Finance Minister Kang Man-soo said last month that the economy would be able to pull off 4 percent growth in 2009, aided by the government's various stimulus packages.

Local and foreign institutions have recently cut their growth rate projections for the country, saying a worldwide recession will hurt exports, the main driver behind Korea's economic growth. Their forecasts vary from minus 3 percent to above plus 3.5 percent.

The economy may report a quarterly contraction in the fourth quarter of this year or the first of next year, economists say. BOK's Jung said the economy would grow by less than 3 percent in the fourth quarter from a year ago, for the first time since the first three months of 2005.

The bank is scheduled to release a revised growth outlook next week.