03/18 17:53
Korea's Economy Probably Shrank 1.1% in 4th Quarter: BN Survey
By Seyoon Kim
Seoul, March 19 (Bloomberg) -- South Korea's economy probably contracted in the fourth
quarter for
the first time in 2 1/2 years, pulled down by falling factory production, weakening
exports and
shrinking domestic spending, economists said.
Gross domestic product probably shrank 1.1 percent from the previous quarter,
seasonally adjusted,
according to the median forecast of 14 economists polled by Bloomberg News. From a
year earlier,
growth probably slowed to 5.3 percent from the third quarter's 9.2 percent, economists
said.
Korea's economy is still hobbling as falling overseas demand hurts exports of
semiconductors,
computers and other goods, and spending at home dries up. Economists expect growth to
halve to 4.5
percent this year from an estimated 9 percent last year, in line with the government's
forecasts.
The government will report 2000 growth figures tomorrow at 12 p.m., Seoul time.
``Most of the economic indicators point to a weak fourth quarter,'' said Prakash
Sakpal, an
economist at ING Barings in Hong Kong. ``Export growth, import growth, private
consumption, retail
sales and industrial output growth tapered off.''
Factory production shrank every month during the fourth quarter, pointing to a
stalling economy.
Faced with shrinking overseas orders for electronics, manufacturers left more capacity
idle, using
only 74 percent in December -- a 21-month low.
Inventories rose an average 18 percent in the October-to- December period from a year
earlier as
factories piled up goods they couldn't sell. Weak spending at home added to the
economy's woes --
retail sales growth slowed every month in the fourth quarter, and domestic
construction orders
fell in October and November.
Slump Continues
This year, the outlook isn't much better. The economy may expand as little as 4
percent in 2001,
with year-on-year growth dipping to 3 percent in the first quarter, Bank of Korea
Governor Chon
Chol Hwan said last month.
As makers of computer chips and other goods face falling orders from the U.S., Korea's
biggest
export market, the government expects 2001 export growth to halve from last year's 20
percent
pace. The central bank expects companies' investment on factories and equipment to
grow just 2.8
percent, down from 37.7 percent last year.
The world's 11th-largest economy can't count on domestic demand to keep growth from
stalling.
Companies and consumers are cutting spending as a government crackdown on almost $50
billion in
bad debt forces companies to cut costs and shed workers to survive, and drives some to
bankruptcy.
A court last week ordered the liquidation of Dong-Ah Construction Industrial Co.,
shutting down
what was once Korea's second-largest contractor. Daewoo Motor Co., the country's
second- biggest
carmaker, went bankrupt in November, when the government identified 52 cash-strapped
companies to
be liquidated, sold or merged.
Signs of Life
To shore up the economy, the central bank cut its key interest rate a quarter-point to
5 percent
last month. Eight of 15 economists surveyed by Bloomberg News earlier this month
expect the bank
to cut rates again next month to spur lending and keep growth on track.
Still, the worst may be over. The government expects the economy to start rebounding
in the second
half of the year as it completes its cleanup of debt-saddled companies and the U.S.
economy
revives.
Industrial production rose in January for the first time in five months, and the
monthly trade
surplus more than doubled. The central bank held rates steady earlier this month,
citing an
improvement in factory production, exports and consumer and business confidence.
``The economy will see a rebound later this year,'' said Kim Seng Hyun, economist at
Hyundai
Investment Trust & Securities Co. in Seoul. ``Domestic spending will get back on
track, and
companies may increase spending after Korea weeds out unhealthy companies and banks.''
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