South Korean economy seen bottoming out (Feature)

By Shery Ahn Jun 19, 2009, 5:22 GMT

   Seoul - Leading economic indicators in South Korea show the economy may be getting back on its feet after being hit hard by the global economic downturn.

   The country's composite index of leading indicators, which estimates future economic activity, rose in April for the fourth consecutive month, providing a glimpse of a rosier outlook.

   All ten components of the index including the ratio of job openings to job seekers, capital goods imports and the amount of construction orders, turned positive in April for the first time in seven years.

   The index hit 114.7 in April, seeing a 1.6-per-cent hike from the previous month, the highest figure since May 2008.

   A figure above 100 means the economy is expanding and provides an optimistic forecast, while a figure below would indicate a downturn.

   A report by the Korea Institute of Finance (KIF), a leading South Korean think tank, says that normally once the country's composite index of leading indicators turn positive, the economy hits bottom in three to seven months.

   'We can say that the South Korean economy is currently bottoming out or will hit bottom soon,' said Chang Min, a research fellow at KIF.

   Chang added that there is no doubt that key economic indicators show the South Korean economy has gone through the worst and is slowly moving towards improvement.

   Another report by the LG Economic Research Institute, a think tank of conglomerate LG Group, forecast that the economy will bottom out and slowly recover from the end of this year or early next year.

   With signs that the South Korean economy is hitting rock bottom, hopes are rising that this trend could soon turn into an upward swing.

   But economists are cautious about the road ahead.

   'The economy may be bottoming out, but a rebound will not be easy,' said Chang, 'It may rather be moving sideways for a while.'

   The South Korean economy, which relies heavily on exports, is expected to continue to be affected by global economic trends.

   Experts said the biggest impact would come from consumption in developed countries. If consumption does not pick up in the latter half of this year, South Korea's exports will decrease.

   While the global economy has been sustained by government stimulus measures worldwide this year, South Korea's economy may be in for another blow when those measures peter out.

   Chang predicted the South's economy to pick up in the first half of 2010, and move toward a full-swing recovery in the latter half. However, the form of this recovery remains a matter of concern.

   'Although the South Korean economy may see a U-shaped recovery, there's a 50-50 chance that it will be a W-shaped one,' said Ahn Soon Kwon, a research fellow at Korea Economic Research Institute.

   As the stimulus measures start to wear out by the latter half of next year, the South Korean economy may plunge again.

   'South Korea has to start recovering early next year, or else there's a high chance of instability ahead,' Chang said.

   But whichever path the economy may be on, for now, South Korean economists are satisfied with the economic indicators.

   'Because the economy is largely subject to sentiment, the promising index of leading indicators which implies an economic improvement in about six months is a positive sign,' Ahn said.

   'This optimism can affect future investment and consumption,' Ahn said.

   In the meantime, the advice is to take it slow. 'Rather than moving rapidly, for the time being, economic agents should take on a stable strategy, putting efforts to build up a strong basis,' Chang said.