[OPE] A Boeing in a nose-dive: the recession in Korea

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Mon Jun 16 2008 - 19:09:36 EDT

The following article from the Korea Times provides an overview of the recession happening in Korea. I still haven't worked out exactly what Mr Lee's strategy is, if I get a chance I will write something on it furtheron. Bear in mind Koreans work more paid hours per person-year on average than justabout any other country. Lee's 747 plan is named after the Boeing 747 and pledges to achieve 7 percent economic growth, increase in the GDP per capita income to $40,000, and to make the nation the 7th largest economy in the world. I reproduce the whole article contrary to my usual habit (you have to bear in mind copyright also in scholarly quotation) because there isn't an article-specific URL. I hope they don't mind to much if it's for scholars and non-commercial use. Stuff by me was posted in Korea as well, so... 


06-16-2008 18:03
Economic Downturn Deepening

By Kim Jae-kyoung
Staff Reporter

The Korean economy is undergoing a downturn at a much steeper-than-expected pace, with all growth engines losing steam at an alarming level.

Reminiscent of the 1997-1998 financial crisis, all economic indicators are currently pointing to a downturn.

Economic growth is slowing down, the current account is in deficit, inflation is soaring, national debts are growing, national income is falling, the job market is sluggish, and finally, investment is plummeting.

Propelled by high-flying oil costs, consumer prices are highly expected to grow way above 5 percent in June, well above the Bank of Korea (BOK)'s inflation target of 2.5 to 3.5 percent.

In May, the nation's raw materials prices gains hit a 28-year high of 79.8 percent year-on-year, according to the BOK. It was the largest monthly increase since 1981, and will put additional upward pressure on consumer prices going forward.

Amid growing uncertainties, corporate investment also fell to the lowest level in eight years. Investment in machinery in the first quarter fell by 0.9 percent from a year ago, the first drop since 2001.

To top it off, self-employed people had income grow by only 0.9 percent last year, the smallest growth since 2005, which is expected to further dampen consumer sentiment.

When considering that gross national income (GNI) grew 3.9 percent last year, mere 0.9 percent income growth for the self-employed reflects they are suffering the economic slowdown more seriously than others.

The job market has also stayed in doldrums, with the number of new jobs reaching 18,400 in March, 19,100 in April and 18,100 in May. The government aims to produce a total of 350,000 new jobs this year.

The Korea's financial soundness is also deteriorating. Korea is expected to become a net debtor country in June for the first time in eight years, with the nation's short-term foreign debts rising at a fast pace.

In March, the country's short-term overseas borrowing reached $176.5 billion, up 10.1 percent from three months earlier. As a result, the net external credit reached $14.95 billion as of the end of March, down from $35.53 billion three months earlier.

All these gloomy indicators suggest that the world's 13th largest economy is losing growth momentum and entering a deep downturn.

Against this backdrop, the government is taking steps to lower its target for key economic indicators, including gross domestic product (GDP) growth and prices.

The Ministry of Strategy and Finance said Monday that it has planned to announce a revised economic outlook in early July, taking into consideration skyrocketing oil prices and sluggish domestic demand.

The ministry is mulling lowering its economic growth target to around 5 percent from an earlier prediction of a mid 6 percent in March, according to an official. It is also expected to revise up its outlook for consumer prices from 3.3 percent to 4 percent or higher.

It is also considering downgrading its prediction for annual job creation to around 200,000 from its earlier projection of 350,000. The current account deficit is also expected to widen to up to $10 billion.

``Growth concerns linger on the domestic front as sentiment is weakening amidst inflation and protests against beef agreement with the U.S.,'' Morgan Stanley analyst Sharon Lam told The Korea Times.

``We predict consumer price index (CPI) growth to exceed 5 percent, and the government is also likely to revise down its GDP forecasts,'' she added.

She forecast that the central bank is not likely to change interest rates this year and possible rate cuts will come in the first half of next year, when inflation is likely to fall within the BOK's target range at below 3.5 percent.

The government's revision on its economic outlook is considered as a drastic setback from its earlier confident stance on President's Lee Myung-bank's ambitious ``747'' plan.

The 747 plan is the gist of the Lee's economic policy, promising an annual growth of 7 percent; an average individual income of $40,000; and the nation's economy becoming the world's No. 7.


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