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Last Updated: Thursday, 22 May, 2003, 05:45 GMT 06:45 UK
Sars and war hit Korean economy
Bank of Korea
The central bank has already cut growth forecasts
South Korea's economy has shrunk for the first time in two years as Sars and the war on Iraq took their toll on the economy.

The Bank of Korea said seasonally adjusted gross domestic product fell 0.4% in the first quarter compared with 2% growth in the previous quarter ending in December.

"Concerns about the Iraq war and North Korea's nuclear arms hurt consumer sentiment and slowed spending," said Cho Sung Jong, the head of the central bank's statistics bureau

Economists expect the economy to continue to struggle because of the impact of Severe Acute Respiratory Syndrome, raising fears South Korea could fall into recession for the first time since 1998.

It is the first quarterly fall since the last quarter of 2000, when growth slumped by 1.2%.

Spending slump

Last week the central bank cut interest rates and the government is working on an emergency budget to prop up the economy because of Sars.

The virus has caused a slowdown in exports, the main driver of South Korean growth, to countries like China, Taiwan and Singapore.

Domestic spending, once the prop of the economy, fell to 0.9% from 4.3% in the previous quarter and 8.9% a year ago, the Bank said.

The central bank has already cut its growth forecast for the year to 4.1% from a previous target of 5.7%.

The economy grew by a provisional 6.3% in 2002.

The BBC's Caroline Gluck
"It's a country that depends heavily on oil imports..."

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