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South Korea’s Economy Expands 0.1% on Stimulus, Rates (Update1) |
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administrator |
DATE |
2009-04-24 09:19:09 |
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South Korea’s Economy Expands 0.1% on Stimulus, Rates (Update1)
By Seyoon Kim, April 23, 2009
April 24 (Bloomberg) -- South Korea’s economy unexpectedly expanded in the first quarter as increased spending by consumers and the government plus a pickup in construction prevented the nation falling into a recession.
Gross domestic product rose 0.1 percent from the fourth quarter, when it shrank 5.1 percent. The median forecast in a Bloomberg survey of seven economists was for a 0.2 percent drop.
Record interest-rate cuts and the government’s 50 trillion won ($37 billion) in stimulus are starting to bolster Asia’s fourth-largest economy. Export declines eased last quarter as the won’s 30 percent drop against the dollar in the past year and a pickup in China helped companies including LG Electronics Inc. and Hyundai Motor Co. weather a slump in global trade.
“The numbers are good news for South Korea, which seems to have escaped the deep slumps seen in other countries,” said Oh Suktae, an economist at Citibank Korea Inc. in Seoul. “That optimism is reflected in the stock market’s rise. Exports have been doing relatively well while the rate cuts and extra government spending are beginning to flow through.”
South Korea’s Kospi stock index has climbed 22 percent this year following a 41 percent slump in 2008.
Singapore’s GDP dropped an annualized 19.7 percent last quarter. Japan’s economy contracted 3.2 percent in the fourth quarter from the previous three months, the U.S. shrank 1.6 percent and Europe’s economies fell 1.6 percent.
Interest Rates
Bank of Korea Governor Lee Seong Tae left his benchmark rate unchanged at 2 percent for a second month on April 9 after 3.25 percentage points in reductions since early October, saying there are signs the economy’s slump may abate.
The economy shrank 4.3 percent from a year earlier following a 3.4 percent contraction in the fourth quarter.
Private consumption climbed 0.4 percent from the fourth quarter, when it dropped 4.6 percent, today’s report showed. Government spending gained 3.6 percent and construction increased 6.1 percent.
Goods exports fell 3.4 percent in the first quarter from the previous three months, easing from a 12.6 percent decline in the fourth quarter. Corporate investment on factories slid 9.6 percent from the fourth quarter.
Across the globe, policy makers are highlighting signs of recovery. Federal Reserve Vice Chairman Donald Kohn this week said the U.S. economy may stabilize in the second half and begin a slow rebound.
In China, the government’s fiscal stimulus drove investment up 30.3 percent in March and lending surged more than six-fold. China is the biggest customer for South Korean exports.
Signs of Recovery
While Korean exports plunged 21.2 percent in March from a year earlier, they rose 11.4 percent from February. Industrial production climbed for a second month in February and manufacturers’ confidence advanced to a five-month high.
“Exports have been faring well compared with neighboring countries,” said Lim Jiwon, an economist at JPMorgan Chase & Co. in Seoul. “The weaker won is benefiting Korean exporters.”
Mobile-phone handset shipments at South Korea’s LG Electronics Inc. will climb 10 percent this year, bucking an 11 percent drop in industry-wide sales, according to Nomura Holdings Inc.’s analyst James Kim.
“We hope to post a better result in the second quarter,” David Jung, chief financial officer of LG, said this week. “We’ll continue to make efforts to increase market share even as the overall industry may not see that much growth.”
KT&G Corp., South Korea’s biggest tobacco company, reported an 11 percent gain in first-quarter profit after a weaker currency boosted overseas cigarette sales by 55 percent.
Difficult Times
Not all reports point to a recovery in South Korea. The jobless rate rose to 3.7 percent in March, the highest since 2005, as employment fell by the most in 10 years. Consumer confidence dropped last month.
“Our economy continues to be in a difficult situation” and is reliant an improvement world economy,” Finance Minister Yoon Jeung Hyun said in Seoul today. “It will take quite some time for the global economy to be on a recovery track.”
The global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize, the International Monetary Fund said this week.
“The impact of the global crisis on economies in Asia has been surprisingly heavy,” the fund said. For South Korea, “given the sharp deterioration in activity, additional monetary easing seems appropriate. There is also ample room for additional fiscal support,” it said.
South Korea’s economy will contract 4 percent in 2009 and grow 1.5 percent next year, the IMF forecast.
“It’ll take time before we can see an economic pickup, mainly as South Korea remains highly dependent on the global economies,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “This suggests the central bank will have to maintain rates as low as they are for quite some time.”
Resource from www.bloomberg.com |
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