South Korea’s GDP Probably Slowed as Exports Damped by Europe
January 25, 2012, 2:29 AM ESTBy Eunkyung Seo
Jan. 25 (Bloomberg) -- South Korea’s economy probably grew at a slower pace in the fourth quarter as the European debt crisis damped demand for Asian exports, pressuring the nation’s central bank to hold rates steady next month.
Gross domestic product expanded 0.5 percent in the three months through December from the prior quarter, when it gained 0.8 percent, according to the median of 10 estimates in a Bloomberg News survey before a government report tomorrow at 8 a.m. in Seoul. From a year earlier, the economy grew 3.5 percent, according to the median of 14 estimates.
South Korean policy makers, who kept the benchmark rate unchanged at 3.25 percent for a seventh month on Jan. 13, have said they’re cautious about raising interest rates as Europe’s debt crisis hurts the global economic outlook and inflation pressures at home persist. China’s economy expanded at the slowest pace in 10 quarters in the fourth quarter, underscoring how Europe’s woes are hitting South Korea’s trading partners.
“The central bank is likely to preserve its limited policy buffer unless 2012 growth is projected to fall below 3 percent, job losses mount and inflation expectations subside,” said Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore. “The resilience in exports and employment lessens the need for immediate policy support. At the same time, inflation and inflation expectations remain too high for comfort.”
Quarter-on-quarter economic growth of 0.5 percent would be the slowest for South Korea since the three-month period ended December 2010. Amid concerns the economy is slowing, Bank of Korea Governor Kim Choong Soo has described interest rates as “accommodative,” adding they can’t remain so for long.
South Korea’s won completed its second weekly gain last week, up 1.3 percent to 1134.21 per dollar. Markets in South Korea were closed yesterday and Jan. 23 for the Lunar New Year holiday. The benchmark Kospi stock index rose 4 percent last week.
Export Outlook
Overseas shipments rose 12.5 percent last month compared with a year ago, the Ministry of Knowledge Economy said on Jan. 1. The ministry forecast export growth will probably slow to 6.7 percent this year from 19.6 percent last year.
Some improving U.S. economic reports such as hiring, manufacturing and car sales have outweighed concerns that the downgrading of European nations by credit rating companies would worsen the debt crisis.
Growth Forecasts
The average forecast for U.S. gross domestic product growth this year has been rising since October. From a low of 2 percent, the median estimate in a survey of 72 economists has climbed to 2.3 percent, including a 0.2-point increase on Jan. 12 that represented the biggest one-day gain since projections for 2012 began, according to data compiled by Bloomberg.
Closer to home, domestic consumption has held up amid job and wage increases. Sales at major South Korean department stores gained the most in eight months in December, according to a government report on Jan. 18.
The finance ministry projected more than 280,000 jobs will be added this year after an addition of 400,000 jobs in 2011. The government will spend about 60 percent of its 2012 budget in the first half to spur domestic demand, the ministry also said last month.
The BOK forecast in December that the economy will grow 3.7 percent in 2012 and 4.2 percent in 2013 after a 3.8 percent expansion in 2011. Consumer prices may increase 3.3 percent this year after a 4 percent gain in 2011, according to the projections.
The BOK’s Kim predicted growth will be little changed this year compared with 2011 as domestic demand offsets an export slowdown.
South Korea’s 30 biggest industrial groups plan to increase total spending, including capital expenditure, by 12 percent in 2012 from last year, the Ministry of Knowledge Economy said on Jan. 13. Spending at the groups, including Samsung Group and LG Group, will rise to a record 151.4 trillion won ($131 billion) and the groups will hire 123,000 new workers, up 2.2 percent from 2011, the ministry said.
--With assistance from Sarina Yoo in Seoul. Editor: Iain Wilson, Patrick Harrington.
To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
