South Korea

South Korea economy to eke out growth

PUBLISHED : Wednesday, 24 April, 2013, 12:34pm
UPDATED : Wednesday, 24 April, 2013, 12:42pm

South Korea’s economic growth probably ticked up in the first quarter but fell short of achieving a firm recovery at a time of heightened risks from a falling yen and North Korea’s war threats, a Reuters poll shows.

Asia’s fourth-largest economy likely grew by a seasonally adjusted 0.6 per cent in the January-March period from the prior quarter, the median forecast from the survey of 25 analysts tipped, above a 0.3 per cent gain in the final quarter of last year.

It would be the fastest growth in a year and the second consecutive quarter of accelerating growth, but below a 0.8 per cent gain that the central bank predicted while holding interest rates steady against political pressure for a cut.

“Growth in the first quarter was slightly better than the last, but there is little difference,” said Lee Sang-jae, an economist at Hyundai Securities. “Beside the fact that the government boosted its spending, there were no big changes in domestic consumption or exports.”

Over the same period a year before, the survey tipped South Korea’s economy to post growth of a median 1.4 per cent in the first quarter, the worst since the third quarter of 2009 and a tad below a 1.5 per cent rise in the final quarter of last year.

President Park Geun-hye, sworn in just two months ago, has ordered swift stimulus policies, but weak exports and uncertain global prospects will keep holding back on spending at home by South Korean households and companies, analysts say.

Just more than half of South Korea’s annual gross domestic product is derived from private consumption, but its working population heavily relies on company investment and employment at exporters of goods such as electronics and cars.

Growth in the first quarter was likely led by the government’s strategy of allocating most of the yearly budget spending early parts and a small improvement in exports against depressed imports of consumer goods and machinery.

Private consumption and corporate investment were probably hit by increased uncertainty after Japan’s drive to double the amount of money in circulation sent the yen tumbling and North Korea’s threats of war rattled financial markets.

“Abenomics will weigh on South Korean exporters, but when that will start materialising is hard to tell,” said Lim Dong-min, an economist at Kyobo Securities in Seoul, referring to Japan’s expansion campaign initiated by Prime Minister Shinzo Abe.

“But a weakened yen will worsen South Korea’s export competitiveness more than boosting consumption within Japan.”

The yen has weakened about 8 per cent against the won so far this year because its 12 per cent fall against the dollar far outpaced the won’s decrease of less than 5 per cent against the US unit.

Government officials, including Finance Minister Hyun Oh-seok, have called for policy easing by the central bank but the Bank of Korea resisted, saying the economy was on recovery although at a much slower pace than seen previously.

The central bank, which delivered two rate cuts in July and October last year, lowered this year’s economic growth forecast to 2.6 per cent from the previous 2.8 per cent. It was still above the government’s prediction of 2.3 per cent growth.