South Korea Pares Fourth-Quarter Growth

Mar 26, 2013

 

South Korea’s economy expanded less than previously estimated in the fourth quarter, boosting the case for stimulus by the new government and underscoring concern that a weaker yen will curb exports.

Gross domestic product grew 0.3 percent from the third quarter, compared with January’s initial estimate of 0.4 percent expansion, the Bank of Korea said today in Seoul. GDP rose 1.5 percent from a year ago, the smallest gain since 2009.

Slower growth in Asia’s fourth-largest economy strengthens the rationale for a supplementary budget that President Park Geun Hye may announce this week. Finance Minister Hyun Oh Seok said March 23 that the yen, down 19 percent against the won in the past six months, is “flashing a red light” for South Korean exports and urged the Group of 20 nations to revisit the issue.

“The weak yen is apparently one of the major imminent threats to South Korean exporters who are also struggling with a delay in global demand pickup,” Park Sang Hyun, a Seoul-based economist at Hi Investment and Securities Co., said before the release. “It seems the new finance minister believes the economy is too weak and it needs strong support,” and an interest-rate cut may come as soon as next month on top of fiscal stimulus, Park said.

The yen has fallen against all 16 major currencies tracked by Bloomberg in the past six months. The won rose 0.8 percent yesterday against the dollar, the biggest gain since Feb. 4, after declining for three straight weeks. The Kospi stock index advanced 1.5 percent as Cyprus’s tentative agreement on an international bailout eased concern that Europe’s debt crisis will escalate.

Forecast Pared

The Bank of Korea in January pared its forecast for this year’s economic growth to 2.8 percent from an October estimate of 3.2 percent. The country’s exports fell 8.6 percent in February from a year earlier. This year’s month had fewer working days because of the Lunar New Year holiday.

Hyun said March 22 that he would use “all possible measures to speed the economic recovery” and indicated that the government support would be announced this month.

Hyun has vowed to consider the “problem” of a sliding yen as part of his “policy package.” He has indicated that the government’s plans to boost growth may include fiscal and housing-market measures. Interest-rate decisions are part of the government’s policy package, he said yesterday.

At their Moscow meeting in February, G-20 nations pledged not “to target our exchange rates for competitive purposes” without any censure of Japan for the yen’s decline.

Repurchase Rate

Earlier this month, Bank of Korea Governor Kim Choong Soo and his board held the seven-day repurchase rate at 2.75 percent after a 25 basis-point cut in October. The economy is “expected to maintain its trend of modest improvement” in coming months, the BOK said in a statement after the decision.

The won’s gains have been tempered by tensions with North Korea, which has threatened pre-emptive nuclear strikes and earlier this month renounced the 1953 armistice ending the Korean War. At the same time, the currency’s rise against the yen has hindered South Korea’s exporters of automobiles and electronics.

Source: bloomberg.com