South Korea Says Global Economy Deteriorating on Europe Crisis

South Korea’s Finance Ministry said economic growth momentum is weak and the global outlook is worsening, highlighting concern that a deepening crisis in Europe may further curb demand for exports.

“Conditions are deteriorating in the global economy with the European fiscal crisis resurfacing,” the Finance Ministry said today in a report to parliament. “There is a concern that financial market unrest in the Euro zone may lead to fallout in the real economy in Europe.”

Moody’s Investors Service cut credit outlooks for Germany, the Netherlands and Luxembourg yesterday and Spain’s 10-year bonds slumped, fueling concern Europe’s debt crisis is spreading. South Korea’s economy probably expanded 0.5 percent in the second quarter from the previous three months when it grew 0.9 percent, according to 13 economists surveyed by Bloomberg news before data due July 26.

South Korea has a contingency plan should the situation in Europe decline further, Finance Minister Bahk Jae Wan said in parliament today. Bahk ruled out additional fiscal stimulus for now in a July 16 interview, saying it could do more harm than good because the global economy is too weak.

South Korea’s won fell for a third day today, down 0.2 percent to 1,149.10 per dollar as of 11:12 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,151.00 earlier, the weakest since July 13. The Kospi Index slid 0.2 percent.

The Bank of Korea unexpectedly cut its benchmark rate on July 12 and a day later pared its 2012 growth forecast to 3 percent from 3.5 percent, the second cut this year. The Finance Ministry announced economic support measures on June 28, including assistance for small businesses and low-income earners.

To contact the reporter on this story: Cynthia Kim in Seoul at ckim170@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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