Economy may be near bottom

The Korean economy may be close to bottoming out, data suggests.

Productivity for mining and manufacturing industries in January climbed 1.3 percent to a month ago, the first on-month increase in four months, according to the Bank of Korea and the National Statistical Office. On-year productivity has fallen 25.6 percent.

Other optimistic signs include the government projections for a month-on-month increase in February`s industrial output rate, as well as an improvement in exports for that month. The government projects an 18.3 percent contraction in exports for February, an improvement from the 33.8 percent drop recorded in January. December recorded a 17.9 percent fall.

The projections come amid fears the Korean economy may be shrinking at a faster-than-expected pace because of sluggish corporate investment and a slump in domestic consumption.

Finance Minister Yoon Jeung-hyun last month predicted that the economy would contract 2 percent, which would mark the first recession in 11 years. The minister also projected companies to slash about 200,000 jobs this year.

However, the latest data show that psychological indicators are also improving. The central bank`s consumer sentiment index in February climbed to 85, a one point increase from the previous month, and the second straight monthly increase.

The most positive signal, experts point out, is projections for a trade surplus. While February`s current account surplus touched $3.5 billion, the trade balance is forecast to hit a record surplus of $4 billion.

Experts say this would improve foreign currency liquidity and thereby help stabilize the financial market. The Ministry of Strategy and Finance said industrial productivity, psychological indicators, and trade data are better than expected.

Although experts stress the need to be careful about reading too much into the data, they see them as possible indicators that the economy might not deteriorate much further.

Quarter-on-quarter growth was around 0.8 percent during each of the first and second quarters of 2008, falling to 0.5 percent in the third. But in the fourth quarter, GDP sharply contracted by 5.6 percent from the previous quarter.

Experts cautiously cite the possibility of a rebound in the first quarter of this year.

"There is the possibility of an improvement amid the better-than-expected economic indicators, but we should be careful not to get too excited just yet, as there is still a long way to go before this global economic crisis disappears completely," Kwon Soon-woo, an economist at Samsung Economic Research Institute, told The Korea Herald.

He noted Korea`s dependence on major overseas markets for exports, such as Europe and the United States, whose financial conditions could worsen.

Kwon cited the need for a balanced view of looking at the economic conditions.

"We need not lean too much toward negative news and then on positive news, we need to find a balance and interpret the signs in an objective way, rather than magnifying the figures and seeing them as bigger and better, or smaller and worse than they really are," the expert said.

Lee Geun-tae, an economist at LG Economic Research Institute, has projected flat growth. The Bank of Korea has also projected economic growth to be flat.

Kim Chang-bae, an economist at the Korea Economic Research Institute, has predicted the economy to start healing within the first quarter and then start to pick up in the fourth quarter.

By Yoo Soh-jung



(sohjung@heraldm.com)