Korea pulls out of global recession

The global financial crisis triggered by the collapse of the U.S. investment bank Lehman Brother in September 2008 sent shockwaves to export-driven Asian emerging markets.

But the Korean economy quickly pulled out of the global recession in 2009, as the globally coordinated fiscal stimulus alleviated financial market jitters and the Korean government`s aggressive expansionary policy helped the economy sustain domestic demand.

The nation`s gross domestic product plummeted 5.1 percent in the fourth quarter of 2008 from the previous three months, but Korea averted a recession by achieving 0.1 percent growth in the first quarter of 2009.

O-quarter GDP growth accelerated to 2.6 percent in the second quarter and 3.2 percent in the third quarter.

The 3.2 percent third-quarter growth was faster than the Bank of Korea`s preliminary estimate of 2.9 percent.

As conditions of the world economy and the recovery in domestic demand turned out better than expected, the Ministry of Strategy and Finance recently revised up the 2009 growth forecast to 0.25 percent from the earlier projection of minus 1.5 percent.

The ministry last week lifted the 2010 growth outlook to 5 percent from 4 percent.



Stability in the foreign exchange market



The foreign exchange market, which was volatile in the first quarter, regained stability as the year progressed.

The won plummeted as low as 1,597 won to the U.S. dollar on March 6, but the local currency started to gain strength since April.

The strengthening of the local currency has been buttressed by an ample supply of the dollar, which resulted from increasing current account surpluses and aggressive net buying of Korean stocks by overseas investors.

The local currency rose to 1,200-won levels until September and the rising momentum accelerated, coupled with the weakening U.S. dollar. The currency gained strength to the 1,100-won levels in October.

The weak dollar pushed up the value of the central bank`s holdings in euro and yen, boosting the total volume of the nation`s foreign exchange reserves to reach $270 billion in November.

It was a ninth consecutive monthly growth, breaking the previous record of $264.5 billion set in March, 2008.

As concerns over Korea`s financial market abated, the nation`s external debts shrank to $397.5 billion as the end of September, compared with $426.1 billion a year earlier, according to data by the Finance Ministry.

The proportion of short-term overseas borrowings out of the total external debts declined to 36.8 percent from 43.8 percent during the same period.



Stock market recovery



Overseas investors` renewed confidence in the economy has led the local stock market to see a quick recovery this year as well.

While foreign investors net-sold 34.6 trillion won worth stocks in 2008, they net-bought 28.1 trillion won stocks in the first 11 months of 2009, financial industry data showed.

The benchmark KOSPI recovered to 1,650-levels in the second week of December from the monthly average of 1,395.24 in June.

Exports, which are the main pillar of the output growth, have seen slower decline with a fast recovery in shipments to China and ASEAN economies. Exports plummeted 16.9 percent year-on-year in the first 11 months of the year, government data showed.

The decline in exports is less severe than the International Monetary Fund`s projection of 26 percent contraction in world trade in 2009.

"Korea`s relatively better performance in exports than other countries is attributed to an increase of ship exports, China`s strong growth and the depreciation of the local currency," the Finance Ministry said in a recent report.

A larger goods account surplus due to a faster decline of imports than that of exports and a smaller services account due to a decline in the number of travelers going overseas resulted in a massive current account surplus of $37 billion in the first 10 months of the year.

However, the nation`s current account structure is vulnerable to changes in international commodities prices including oil prices, as raw materials account for about 60 percent of total imports.

Korea should reduce energy dependence on imports by improving technological competitiveness in core raw materials and parts, experts said.



Job market



Employment has been recovering at a slower pace than the recovery of the overall economy.

Changes in the number of jobs remained in negative territory until the third quarter.

The economy lost 146,000 jobs in the first quarter compared to a year earlier, 134,000 jobs in the second quarter and 1,000 jobs in the third quarter. Hit hardest were daily workers and those in the manufacturing and construction sector, while the service industry saw job gains supported by the government.

The government`s job creation campaign including offering public works to the unemployed for a limited amount of time helped the economy gain jobs from June.

Consumer inflation, which used to be high at 4.5 percent in November, 2008, came down fast to 2.4 percent in November this year, as the stronger won and the economic downturn stabilized prices.

Home prices rose fast in some areas in and around Seoul around the second quarter but began stabilizing in mid-September, after the top financial regulator tightened rules on home-backed loans in Seoul`s metropolitan area by lowering the loan-to-value ratio to 50 percent from the previous 60 percent in early July.

(yoonmi@heraldm.com)









By Kim Yoon-mi