SKorean economy shrinks for first time in a decade

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(Agencies)
Updated: 2009-01-22 11:47

SEOUL, South Korea – South Korea's economy shrank in the fourth quarter of 2008, contracting from the previous year for the first time in a decade as sharply lower overseas demand for the country's products devastated production and exports.

The Bank of Korea announced Thursday that gross domestic product contracted 3.4 percent in the three months ended Dec. 31 compared with the same period a year earlier.

South Korea's economy last shrank on a year-on-year basis in the fourth quarter of 1998, when it contracted 6 percent while the country was in the throes of the Asian economic crisis.

The latest figure comes as the export-oriented country faces shrinking markets for its automobiles and electronics products as the global financial crisis and ensuing economic slowdown have spurred consumers to slash spending.

Manufacturing and exports both declined sharply during the quarter, the central bank said. Manufacturing fell 9.2 percent from the same period the year before, while goods exports plunged 11.5 percent.

For all of 2008, South Korea's economy grew 2.5 percent, the worst performance since an annual contraction of 6.9 percent in 1998, the central bank said. Some economists are predicting Asia's fourth-largest economy could shrink in 2009. South Korea grew 5.1 percent in 2007.

The bank also reported a contraction of 5.6 percent in the fourth quarter from the third, the first since 2003.

The global financial turmoil has hit South Korean financial markets hard, with the benchmark stock index falling nearly 41 percent last year. The South Korean won had its biggest annual drop against the dollar since the Asian financial crisis.

Investors, however, appeared to shrug off Thursday's GDP figures.

South Korea's benchmark stock index rose 1.2 percent to 1,116.81 in early trading. The won gained 0.3 percent against the dollar.

The Bank of Korea has aggressively cut interest rates to a record low 2.5 percent to try and boost the economy, which is also suffering from declining consumer spending, rising unemployment and fears about weakness in local banks.

The domestic economy also fared poorly during the fourth quarter, with private consumption, which is mostly consumer spending, declining 4.4 percent from the year before and construction falling 4.7 percent.