JP Morgan Chase & Co. said on Friday that South Korea's economy is expected to contract 2.5 percent in 2009, sharply lower than its earlier projection of a 0.5 percent expansion.
The downgrade follows many investment banks and research institutes movement of lowering the economic growth projection to 1-percent range, with some expecting a recession for the first time in more than a decade.
On Wednesday, the Korea Development Institute, South Korea's state-run think thank, predicted the nation's economy to grow 0.7 percent in 2009, while Fitch Ratings expected the economy to shrink 2.4 percent.
With an early-stage inventory adjustment taking place in the manufacturing sector, the slowdown there is taking its toll even on the service sector, JP Morgan economist Lim Ji-won said. He said JP Morgan expects South Korea's GDP to remain in negative territory during the current quarter.
Lim added that JP Morgan expects South Korea's central bank to lower the interest rates by 0.5 percentage point in the upcoming policy-setting meeting slated for Feb. 12 to boost the slumping economy.
(Xinhua News Agency January 23, 2009)