South Korean economy shrinks 5.6 percent

January 22nd, 2009 - 10:16 pm ICT by IANS  

Seoul, Jan 22 (DPA) South Korea’s economy contracted at a more-than-expected rate of 5.6 percent in the final quarter of 2008 - its biggest drop since the Asian financial crisis a decade ago - and may be heading towards a deep recession.As exports shrank, domestic consumption waned and business investment declined, the central bank said Thursday.

The fall in the country’s gross domestic product (GDP) from the quarter before contrasted with a 0.5-percent rise in the third quarter. On a year-on-year basis, the fourth-quarter fall was 3.4 per cent as the global economic crisis gripped South Korea, the Bank of Korea said.

The quarter-on-quarter contraction was more than twice what economists had predicted. The country’s economy contracted for the first time in five years in the final quarter.

In the first quarter of 2003 the economy shrank by 0.4 percent. It was also the worst decline since 1998’s first quarter, when GDP fell 7.8 percent.

For all of 2008, South Korea’s economy expanded 2.5 percent, down from 5-per-cent growth in 2007, the central bank said.

The Bank of Korea had earlier forecast 2-per-cent growth for 2009. However, Choi Choo Shin, the head of the bank’s statistics office, said this prognosis was now unlikely.

“The decline is stronger than we expected back in mid-December,” he said. Exports, company profit and household incomes have been dragged down by the global slowdown. The BoK is expected to issue a new forecast in April. Analysts expect a 3-percent contraction.

Exports from Asia’s forth largest economy dropped by 11.9 percent compared with the previous quarter, the largest decline since 1979. Imports dropped by 13 percent.

South Korea’s conservative government has already prepared a 140-trillion-won ($101 billion) stimulus package, which also includes tax cuts. Two weeks ago, the central bank cut its key interest rate to 2.5 percent, the lowest rate on record.

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