The failure of two big steelmakers and almost a month of labour strikes have dashed hopes for an economic revival in South Korea this year, a central bank official said yesterday.
The bank has lowered estimates for gross domestic product (GDP) growth this year to 6.0 per cent from 6.4 per cent, deputy bank governor Kim Young-dae said.
He told reporters the economy appeared to have hit bottom, but there were no signs of a quick recovery.
Conditions have worsened since we made our first forecast late last year, Kim said. Strikes in January, the Hanbo collapse and Sammis failure have all had a negative impact on the economy. Previously, we thought the economy would rebound in the second half of this year. But that possibility has fizzled.
Hanbo Steel Co went under in January with $5.8 billion in debts in the countrys biggest corporate failure.
On Tuesday, Sammi Steel Co filed for court protection along with a sister company.
The failures hit an economy already reeling from strikes sparked by the passage last December of a labour law that made layoffs easier. The bill was watered down and a new version was adopted this month.
Some of the worst industrial unrest in South Korean history cost the country $3.28 billion in lost production.
Corporations are suffering from an export downturn and heavier financing costs.
Overseas borrowing rates have gone up as the local currency sinks and foreign lenders become jittery over the health of South Korean banks.
Some private economic think-tanks are predicting economic growth this year of 5.0 per cent, the lowest since 1980.
Separately, finance minister Kang Kyong-shik said he could offer no quick fix.
Im sorry to say this, but I have no remedy to instantly end economic difficulties we are suffering, he told an eagerly awaited news conference. He said there was no room for short-term boosting measures. Even if the growth rate is lowered to the five per cent level, we will have to endure it and make efforts to correct our economys structure by stressing price stability and improving the balance of payments, Kang said.
Financial markets had been hoping Kang would offer concrete steps to boost economic growth and cut the trade deficit.
Kang said tax revenues and government spending this year would be slashed as part of belt-tightening measures to keep inflation under control as the economy slowed.
The government would cut two trillion won ($2.26 billion) from this years budgeted tax revenues and reduce public spending by an additional one trillion won on top of an earlier announced one trillion won cut.
Inflation is now running at below five per cent, the same rate as last year.
Budget growth would be held in single digits next year after a 13.7 per cent rise this year, Kang said. Savings would come from job cuts and administrative reorganisation.
The central bank said GDP grew 7.1 per cent in 1996 against an 8.9 per cent rise in 1995. Private-sector consumption, investment and exports all slowed in 1996.
Exports rose 14.1 per cent, down from a 24 per cent gain a year earlier, while imports rose 14.8 per cent against a 22.0 per cent rise in 1995.
Last years current account deficit ballooned to $23.72 billion against $8.95 billion in 1995, according to earlier central bank figures.
