South Korea recovery loses steam

China, expected to soon overtake Japan as the world’s second-largest economy, grew 10.7 per cent in the fourth quarter and expanded 8.7 per cent overall in 2009.

Faltering recovery

However, some other economies in the Asia-Pacific region have had lacklustre numbers following earlier surges.

Japan grew a revised 1.3 per cent on an annualised basis in the third quarter in a marked slowdown from the second, while Australia’s expansion also decelerated.

Singapore’s economy actually shrank in the fourth quarter after two straight quarters of strong growth.

South Korea, Asia’s fourth-largest economy, grew in every quarter in 2009 after shrinking 5.1 per cent in the final three months of 2008.

That result had led to dire predictions that the economy could contract as much as three per cent for the entire year.

But the Bank of Korea, South Korea’s central bank, said on Tuesday that the economy managed to expand 0.2 per cent for all of 2009.

That figure was, however, sharply down from the 2.2 per cent growth recorded the year before and marked the worst annual performance since a 5.7 per cent contraction in 1998 during the Asian financial crisis.

Exports down

Manufacturing contracted 1.3 per cent while construction shrank 1.4 per cent [EPA]

The Bank of Korea steadily slashed its benchmark interest rate to a record low two per cent and the government pumped nearly $43.4bn worth of stimulus in the form of extra spending and tax cuts into the economy from late 2008 to 2009 as the authorities worldwide took similar measures to revive growth.

South Korea’s economy began a slow ascent, growing 0.1 per cent in the first quarter, 2.6 per cent in the second and 3.2 per cent in the third, boosted by a gradual recovery in export markets and aided by weakness in the South Korean won, which made the country’s products more competitive.

But in the fourth quarter, manufacturing contracted 1.3 per cent, construction shrank 1.4 per cent and exports fell 1.8 per cent, the central bank said, putting the brakes on growth.

In a November report, the Organisation for Economic Co-operation and Development praised South Korea’s recovery as “one of the earliest and strongest” in the 31-member group and predicted that a “sustained pickup in exports” would bolster growth in 2010 and 2011.

But the unemployment rate, which had earlier shown signs of improvement, rose in December to 3.5 per cent, the second straight month of increase.

The central bank said in a December report that employment levels are unlikely to return to pre-crisis levels as small business failures have become a “structural factor”.