South Korea's economy will probably grow in 2009 at its slowest clip in 11 years due to a deepening global downturn, with the growth rate slowing to less than half the pace seen three months ago, a Reuters poll showed.
Asia's fourth-largest economy will recover some momentum in 2010 on the back of various domestic and global stimulus measures but will perform far below levels since in recent years, the survey of 10 economists suggested.
The poll was conducted before Bank of Korea slashed its key rate by a record one percentage point to 3 per cent, a record low, to help the economy avoid sliding into its first recession in a decade.
The economy will probably grow 2.1 per cent next year, marking its worst performance since a 6.9 per cent fall in 1998 in the wake of the Asian financial crisis. Growth is expected to pick up to 3.8 per cent in 2010, still below the 5 per cent pace recorded in the past two years, median forecasts from the survey showed.
In the previous poll published in late September, economists had forecast that South Korea's economy would expand 4.6 per cent in 2009.
The finance ministry aims for 2009 growth of around 4 per cent after a projected 4.7 per cent expansion this year, but several officials have admitted that the ministry's forecast may turn out to be too optimistic.
"Actually, I may have to lower the growth forecast further as we have not seen a bottom yet. Whenever I make a new forecast, I see fresh bad factors," said Oh Suk-tae, an economist at Citigroup, who has a 2 per cent forecast for 2009.
Exports, which have been a main engine for the country's economic growth, are cooling, reflecting a slump in global demand.
Weaker exports and the global financial turmoil will squeeze an already subdued domestic demand even further next year, economists said.
With the economy losing momentum quickly, the Bank of Korea is expected to keep cutting interest rates in months ahead in addition to 225 basis points of easing since early October.
Despite rate cut expectations, the won currency is seen rebounding next year from a loss of more than 30 per cent this year as South Korea's trade balance is expected to turn positive thanks to a sharp drop in oil prices and weaker imports in general, economists said.