SEOUL - SOUTH Korea said on Thursday the economic downturn has eased and it now expects a contraction of 1.5 per cent this year compared with the 2 per cent shrinkage predicted earlier.

'The economic downturn has eased, with some indicators pointing to an improvement, but the recovery is still weak,' the Ministry of Strategy and Finance said in an outlook report.

'We will maintain expansionary policy for a while as uncertainties linger internally and externally, and strive to normalise the macroeconomic policies over time when the recovery becomes visible.' The ministry left its forecast for 4 per cent growth next year unchanged.

On Wednesday the International Monetary Fund said it would give a more optimistic outlook on Asia's fourth-largest economy in a new forecast next month. It gave no figures.

The World Bank has forecast that the export-dominated economy will contract 3 - 3.5 per cent this year and grow 2 per cent next year, becoming one of the first nations to emerge from the global crisis.

The finance ministry now forecasts exports will decline 16 per cent this year before rebounding 11 per cent next year. It expects imports to fall 24 per cent this year and expand 16 per cent in 2010, while the trade balance will probably see surpluses of US$26 billion (S$37.9 billion) this year and US$12 billion in 2010.

The ministry added that the jobless rate will be 3.6 - 3.7 per cent this year and 3.6 per cent next year.

But it said the number of people losing their jobs this year will be smaller than expected at 100,000-150,000, due to fiscal stimulus measures and an improved economy in the second half.

In February the ministry said 200,000 jobs would disappear this year. In 2010, the government expects 150,000 new jobs to be created.

South Korea averted recession in the first quarter by growing 0.1 per cent from three months earlier, after declining 5.1 per cent in the last quarter of 2008. -- AFP