South Korean GDP Growth Revised to 4-Year-Low of 0.5%

By William Sim

Dec. 2 (Bloomberg) -- South Korea’s economy expanded slower than initially estimated last quarter on weaker exports and domestic demand, adding to concern the nation is headed for its first recession in 10 years.

The economy grew 0.5 percent from the previous three months, the weakest pace since 2004, the Bank of Korea said in Seoul today, down from the 0.6 percent estimate on Oct. 24. Exports fell 1.9 percent from the second quarter, compared with the previously published 1.8 percent

The central bank will probably cut its forecast for 2008 economic growth next week as fallout from the global slowdown increases, an official said today. South Korea is pumping funds into its financial system, cutting taxes, boosting public spending and slashing interest rates to support its $970 billion economy as overseas demand falters.

“We are facing a deeper downturn as both exports and local demand weakens,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “The government will make an ‘all-in’ effort to stimulate local demand as exports wane.”

The economy advanced 3.8 percent from a year earlier, less than the previously published 3.9 percent.

Asian nations are being battered by faltering demand for their products amid recessions in the U.S., Japan and Europe and weakening growth in China. South Korea’s exports fell by the most in almost seven years in November as shipments to China, the nation’s biggest overseas market, tumbled 27.8 percent.

Economic Contraction

The economy may contract for the first time in almost six years in the fourth quarter should exports drop in December, Jung Yung Taek, a Bank of Korea statistics official, told reporters today. “That’s a possibility.”

He said the central bank next week is likely to lower its 2008 growth forecast from 4.6 percent.

Korea’s won, Asia’s worst-performing currency this year, dropped 1.5 percent to 1,458.10 per dollar at 10:30 a.m. in Seoul. The Kospi stock index tumbled 3.8 percent to 1,018.62, extending this year’s decline to 46 percent.

Real gross national income, a measure of the country’s purchasing power, declined 3.7 percent last quarter from the previous three months, the biggest drop since 1998, according to today’s report.

President Lee Myung Bak last week urged his ministers to take more steps to stem the biggest crisis since South Korea’s emergency bailout by the International Monetary Fund in 1997.

Interest Rates

The Bank of Korea yesterday lowered lending rates on special U.S. dollar loans earmarked for exporters.

The bank cut the nation’s benchmark interest rate to 4 percent on Nov. 7, the third reduction in four weeks and the most aggressive round of easing in a decade. The board signaled it’s ready to act again, and next meets on Dec. 11.

Domestic demand rose 0.3 percent in the third quarter, less than the initially published 0.4 percent, according to today’s report. Household spending gained just 0.1 percent.

Industrial production declined for the first time in 13 months in October as factories cut output to cope with slowing demand at home and abroad, the government said last week.

Posco, Asia’s third-biggest steelmaker, is slashing planned output by about a third in the fourth quarter. Hyundai Motor Co. has cut overtime production of its sport-utility vehicles and small trucks.

Hyundai Motor, Kia Motors Corp. and South Korea’s three other carmakers sold 8.6 percent fewer vehicles in November as the global economic slump eroded demand, according to Bloomberg News calculations based on data from the companies yesterday.

South Korea’s construction investment was unchanged in the third quarter, down from the initial estimate of a 0.3 percent gain, according to today’s report. Facility investment increased 2.1 percent, down from the previously forecast 2.3 percent.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.