Korea GDP Shrinks 0.4% in 4th Qtr as Exports, Investment Slump By Kyunghee Park

Seoul, March 20 (Bloomberg) -- South Korea's economy shrank in the fourth quarter for the first time in 2 1/2 years as slumping demand abroad and at home forced companies to cut production and investment.

Gross domestic product declined 0.4 percent from the previous quarter, seasonally adjusted, the Bank of Korea said. That compared with a revised 2.4 percent expansion in the third quarter and economists' expectations of a 1.1 percent contraction. For all of last year, the economy grew 8.8 percent.

Korea's economy is running out of steam as falling overseas orders hurt Hyundai Electronics Industries Co., Trigem Computer Inc. and other exporters. Spending at home is also deteriorating - - the key stock index shed 17.7 percent of its value last quarter, and a government crackdown on bad debt forced companies to cut costs and shed workers.

``Domestic economic conditions worsened as the declining stock market and the government's restructuring efforts caused many companies and consumers to cut back on spending,'' said Chung Jung Ho, director-general at the Bank of Korea's economic statistics department.

This year, the central bank has said it expects growth to slow by about half from last year's pace.

From a year earlier, fourth-quarter GDP grew 4.6 percent, half the third quarter's 9.2 percent gain and the fourth straight slowdown. Korea's 10.9 percent economic expansion in 1999 -- revised today from 10.7 percent -- was the fastest in Asia.

Exports, Manufacturing

Spending at home was too weak to keep growth on track last quarter as stalling economic growth in the U.S., the biggest buyer of Korea's goods, curbed exports and manufacturing.

Exports fell 0.4 percent from the third quarter, seasonally adjusted, after a 5.4 percent increase the previous quarter. Waning overseas orders helped cut manufacturing -- which makes up about one-third of Korea's GDP -- by 2.7 percent, reversing the third quarter's 5.2 percent increase.

The government expects export growth to halve this year from last year's 20 percent pace. Overseas sales of computer memory chips, mobile phones, cars and other goods pulled Korea out of a recession in 1998, and make up about one-sixth of Korea's economy.

Imports are also declining as manufacturers order fewer raw materials and consumers rein in spending. Purchases of overseas goods fell 1 percent in the fourth quarter after rising 6.1 percent in the third quarter.

Investment Tumbles

Companies' investment in plants dropped 9.3 percent in the fourth quarter, extending the third quarter's 0.5 percent decline, and construction fell 0.8 percent. Household spending and total private consumption both rose 0.3 percent, matching the third quarter's increase.

Spending may not rebound any time soon as the government continues its clean-up of about $45 billion in bad loans, forcing companies to cut costs and shed workers to survive. Korea's jobless rate rose in February to 4.2 percent, a 12-month high, the government reported today.

A court last week ordered the liquidation of Dong-Ah Construction Industrial Co., shutting what was once Korea's second- largest contractor. Daewoo Motor Co., the country's No. 2 carmaker, went bankrupt in November, when the government targeted 52 companies to be liquidated, sold or merged.

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 rates to fall again in April as the bank tries to spur lending and keep growth on track.

End in Sight

Still, Korea's economy may change course later this year. The Bank of Korea said it expects growth to return in the second half of the year as the U.S. economy regains momentum.

Industrial production rose in January for the first time in five months, and the monthly trade surplus more than doubled in February. The central bank held rates steady earlier this month, citing an improvement in factory production, exports and consumer and business confidence.

Reflecting companies' confidence that business conditions will improve, the Bank of Korea's Business Survey Index for the second quarter rose to 92 points from the first quarter's 67. A separate government survey showed consumers plan to spend more in coming months. http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOrbH4hT3S29yZWEg

-- Carl Jenkins (somewherepress@aol.com), March 19, 2001