Korea fared well last year, but risks persist

Korea`s economy fared pretty well through last year`s brutal global environment, but it is not yet out of the woods, economists said yesterday.

"The economy has recovered fast, and in fact, it was a V-shaped recovery," Oh Suk-tae, an economist at SC First Bank, said.

Asia`s fourth-largest economy expanded 0.2 percent year-on-year in 2009, weathering the impact of financial turmoil and a global economic contraction, data from the Bank of Korea showed.

Gross domestic product grew 0.2 percent in the final quarter of the year from the previous quarter when it expanded 3.2 percent. The GDP is the broadest measures of a nation`s economic activity.

Quarterly growth had plunged to minus 5.1 percent in the fourth quarter of 2008, when the initial shock of the global crisis hit Korea, but it has since recovered to 0.1 percent in the first quarter of 2009, 2.6 percent in the second and to 3.2 percent in the third.



"The pace of recovery has slowed in the final quarter of 2009 and we`re unlikely to see a significant pickup this year," said Go You-sun, an economist at Daewoo Securities Co.

Still, Korea seemed to have withstood the shock of the latest financial crisis better than it did with the Asian financial crisis in 1997 and 1998, the central bank said.

"It took six quarters for the economy to bounce back from the Asian financial crisis. But this time it was reduced to four quarters," Kim Myung-ki, a BOK official, said during a press briefing.

"Other than resources-rich countries, Korea is the only member of the Organization for Economic Cooperation and Development that reported positive economic growth (last year)," he added.

The central bank forecast that the Korean economy will grow 4.6 percent this year. The government, which has a rosier forecast of around 5 percent growth, says it will stick to an expansionary fiscal policy, at least in the first half of the year, in order to put the fragile economic recovery on a more solid footing.

The recovery will continue into early 2010, but there are some signs of moderation in the months ahead as the gains from temporary factors, such as inventory restocking fade, said Alaistair Chan of Moody`s Economy.com

"The implementation of the so-called exit strategy is among the risk factors as the economy goes along the path to a full recovery," Daewoo Securities` Go said.

Go and other analysts are watching when the central bank will raise the benchmark interest rate, which hasn`t changed from the record low level of 2 percent since February last year.

Oh warned that external shocks could hit the Korean economy again at anytime, given the high level of uncertainty in global markets.

"The situation in other economies such as the United States and China could affect the local economy," he said. (milaya@heraldm.com)













By Lee Sun-young