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SEOUL, May 09, 2008 (AsiaPulse via COMTEX) -- South Korea's economy is entering a "downward phase" after having reached its peak, weighed down by slowing domestic demand, rising prices and other unfavorable business conditions, a government report showed Friday.

Skyrocketing crude oil prices, a global economic slowdown and worsening terms of trade will keep adding pressure, causing a further contraction in Asia's fourth-largest economy down the road, according to the report by the Ministry of Strategy and Finance.

"The South Korean economy is faced with sluggish domestic consumption and rising inflation mainly due to high crude oil prices despite robust exports," the report said. "Given the recent major economic indicators, the economy seemed to have passed its peak and entered a downward phase."

The downbeat estimates follow the announcements of a series of major indicators recently, most of which point to a downward direction for the economy. They are also in line with Finance Minister Kang Man-soo's frequent comments that the economy passed its peak and is now going downward.

According to the monthly report, which summed up the recently announced indicators, the country's industrial output continued its two-digit growth in March but the service-sector production growth slowed down to 5.4 per cent from the previous month's 5.9 per cent.

Consumer sales and facility investment also remained sluggish. First-quarter consumer sales stayed at their lowest mark in three years with their yearly expansion standing at only 3.5 per cent. Facility investment also inched up a mere 1.7 per cent during the first three months of this year, compared with the 2007 average of a 7.6 per cent gain.

The job market is no exception, the report showed. In March, around 184,000 new jobs were created but the figure is far below the government's target of 350,000.

Rising prices of oil, raw materials and other commodities seemed to have dented consumer sentiment by pushing up inflation, the report showed. Consumer prices in April jumped 4.1 per cent from a year earlier, the fastest growth in almost four years, breaching the central bank target range for the fifth consecutive month.

The country's economic growth slowed to the lowest pace in more than three years in the first quarter due to weakening private consumption and corporate investment, according to an earlier report by the Bank of Korea, the central bank.

Those gloomy indicators and related data may cause jitters in the government of President Lee Myung-bak, who took office in late February, as it is pushing for higher growth while trying to keep inflation under control.

The government initially aimed to achieve economic growth of 7 per cent this year but lowered the objective to around 6 per cent, apparently reflecting downside risks at home and abroad. Many experts and even government officials see the revised target as considerably optimistic. Last year, South Korea's economy grew 5 per cent.

The report called for the government to make more efforts to stabilize the economy, without mentioning any specific measures, as it expects to see a further contraction with conditions at home and abroad likely to worsen rather than improve.

(Yonhap)

(C) 2008 Asia Pulse Pte Ltd

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