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Last Updated:  Friday, 21 March, 2003, 07:17 GMT
Korea warns of war slowdown
Central Bank worker
The central bank is desperate to rebuild confidence
South Korea is expecting its economic growth to slide in the first three months of this year as a result of the uncertainty triggered by the buildup to the attack on Iraq.

In a statement, the central bank said that late last year expansion had exceeded expectations, shooting up a provisional 2% with exports up by almost a quarter over the year before.

But the combination of the global downturn, ever-increasing fears about the nuclear standoff with North Korea and a $1.2bn accounting scandal which broke earlier this month means tougher times are ahead, the bank warned.

"We see (annualised) growth of 5% unattainable during the first quarter," said Cho Sung-jong, head of the bank's statistics bureau, "and there are variables that could lead to a downgrade of this year's growth target of 5.7%."

'Room to manoeuvre'

There was little immediate effect on Korean markets from the announcement, which saw the Kospi index drift higher in the wake of gains for Wall Street overnight and the Korean won move slightly lower.

And the wildfire expansion at the end of 2002 provides something of a cushion should the uncertainties of early 2003 prove damaging.

If the provisional fourth-quarter numbers are correct, South Korea's economy was 6.3% bigger at the end of 2002 than at the beginning, with GDP per head of the population topping $10,000 for the first time since the Asian currency meltdown of 1996-7.

Analysts said that there was probably plenty of elbow room to reinvigorate things. "I think the overall economy is well positioned to withstand a lot of shocks," said Rob Subbaraman, an economist at Lehman Brothers in Seoul.

Hair trigger

But the nuclear weapons under construction just across the border - little more than a few dozen kilometres separate Seoul from the demilitarised zone - and the half-hearted response to the crisis from a US focused on Iraq - are scaring investors.

And the scandal surrounding SK Group, whose trading arm has been found to have mis-stated its accounts to the tune of $1.2bn, has shaken markets.

The central bank recently pumped 2 trillion won (740m; $1.6bn) of extra liquidity to support banks and credit card companies - stretched by a credit-fuelled consumer spending boom - exposed by investors' rush to pull out of high-risk bonds they had issued.

The bank has ruled out an interest rate cut.

Firm admits $1.2bn accounts error
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Country profile: South Korea
10 Mar 03 |  Country profiles
Timeline: South Korea
10 Mar 03 |  Country profiles

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