Goldman, Nomura see recession in `09

Major investment banks in and out of the country have recently lowered their already low forecasts on the Korean economy, fueling widespread fears that the country is headed for the first recession in a decade, industry sources said yesterday.

Goldman Sachs said Asia`s fourth-largest economy will shrink 1 percent in 2009, lowering its forecast from a 1.8 percent expansion in November.

The disappointing revision came "on the back of the recent precipitous decline in exports and a weak exports recovery outlook," Goldman economist Kwon Goo-hoon wrote in a report released last week. Kwon noted that Goldman expects exports to keep falling by double digits on a year-on-year basis during the first three quarters of 2009. This would be the worst performance since 1974, he said.

Exports of goods and services will drop 11 percent this year, far worse than a 4.2 percent decline the global investment bank predicted before.

The country`s output plunged 14.1 percent in November from a year ago. Exports fell 17.4 percent in December, following a drop of 18.3 percent in November. Exports account for about 50 percent of the nation`s gross domestic product.

Goldman`s downward projection follows Nomura International Ltd. and UBS AG`s negative outlook for the Korean economy.

Nomura International said Korea`s economy will contract two percent this year, revising its forecast of a 1.3 percent expansion.

"In light of recent data, which were substantially weaker than we had expected, we have revised our forecasts to show a recession," Kwon Young Sun, a Hong Kong-based economist at Nomura, wrote in a report on Jan. 8. "We expect the Bank of Korea to respond aggressively."

"Our scenario implies that GDP growth on a year-on-year basis will remain in negative territory over the next three quarters," Kwon said. "We have become more pessimistic on the outlook for both exports and business investment."

Late last year, Swiss bank UBS said that the Korean economy would shrink 3 percent this year. Merrill Lynch also in late December expected a contraction of 0.2 percent.

Local finance institutions have come up with negative figures for the Korean economy as well.

Shinyoung Securities Co. said in its report last week that it is inevitable to lower the nation`s GDP growth considering the speed of economic recession in major countries like the United States.

Shinyoung has revised its forecast on the Korean economic growth rate from 2.7 percent to 0.6 percent.

In its quarterly projection, Korean GDP growth will fall 2 percent and 0.9 percent respectively in the first and the second quarter of the year. Shinyoung predicted that the nation`s economy will bound back in the third quarter of the year with 1 percent and 4 percent in the fourth quarter.

Local institutes are to announce their revisions on the country`s economic growth this week.

The Korea Development Institute will unveil its revised forecast on the nation`s GDP growth on Wednesday. The government`s top research institute predicted the Korean economy would grow 3.3 percent in November.

By Cho Chung-un



(christory@heraldm.com)