SEOUL - SOUTH Korea's economy will record its slowest growth for 11 years in 2009 as the global recession hits exports and domestic demand remains weak, the central bank said on Friday.

The Bank of Korea forecast 2 per cent growth for Asia's fourth largest economy next year, down from an estimated 3.7 per cent for this year and 5 per cent in 2007.

The 2009 forecast would be the lowest figure since 1998 when the economy shrank by 6.9 per cent in the wake of the Asian financial crisis.

The central bank estimated negative growth of 1.6 per cent in the fourth quarter of this year compared to the previous quarter, in what would be the first quarterly contraction for more than five years.

But it said growth would rise to 4 per cent in 2010 as the global economy gradually recovers.

On Thursday, the bank cut its key interest rate by a record full percentage point to an all-time low of 3 per cent, to boost the cooling economy.

In early November the government announced a 10.7 billion dollar economic stimulus plan, involving extra budget spending of 11 trillion won next year and tax cuts totalling three trillion.

Parliament was finally set to approve the new budget Friday after weeks of wrangling between rival parties.

Investment banks and international bodies have already cut their growth predictions for Korea's export-dominated economy.

The International Monetary Fund lowered its 2009 forecast to 2 percent from 3.5 per cent, while major global investment banks have predicted an average of 1.2 per cent.

The government's official forecast for 2009 remains at around 4 per cent.

The central bank said exports, which last year accounted for 38 per cent of gross domestic product, would expand 1.3 per cent in 2009 year-on-year, down sharply from an expected 3.6 per cent rise for 2008.

Consumer spending was tipped to rise just 0.8 per cent in 2009 after increasing an estimated 1.5 per cent this year.

Exports declined 18.3 per cent year-on-year in November, the biggest drop in almost seven years. -- AFP