Bloomberg News

South Korea’s Economy Expands at Fastest Pace in a Year

April 25, 2012

A customer hands a South Korean 10,000-won banknote to a vendor at the Noryangjin Fish Market in Seoul, South Korea. Photographer: SeongJoon Cho/Bloomberg

A customer hands a South Korean 10,000-won banknote to a vendor at the Noryangjin Fish Market in Seoul, South Korea. Photographer: SeongJoon Cho/Bloomberg

South Korea’s economy expanded at the fastest pace in a year even as austerity measures in Europe and a slowdown in China cloud the outlook for exports. Stocks and the won rose.

Gross domestic product rose 0.9 percent in the first quarter from the previous three months, when it gained 0.3 percent, the Bank of Korea said today. That matches the median estimate of 13 economists surveyed by Bloomberg News.

Government spending and investments by semiconductor chip makers boosted the economy as European nations stepped up efforts to ease a debt crisis that has crimped Asian exports. The U.K. sinking into its first double-dip recession since the 1970s highlights the threat that global demand will falter as developed nations cut spending to improve their finances, and Bank of Korea Governor Kim Choong Soo said last week that “downside risks” will probably remain high for some time.

“GDP has recovered from a momentary soft patch in the fourth quarter that was largely caused by heightened uncertainties over the European debt crisis, which have since eased,” Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore, said in a note after the report. The central bank may keep interest rates unchanged this year, “with a growing chance of a hike in the second half.”

The won rose 0.2 percent to 1,138.55 per dollar as of 10:30 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi stock index advanced 0.3 percent.

N.Z. Holds Rate

Asian stocks rose for a second day as Federal Reserve Chairman Ben S. Bernanke said he’s prepared to do more to stimulate growth and after South Korea’s economic report. The MSCI Asia Pacific Index climbed 0.6 percent as of 10:32 a.m. in Tokyo.

Earlier today, New Zealand’s central bank left interest rates at a record low, citing benign inflation, and signaled the rising currency may delay an increase in borrowing costs.

Elsewhere in the Asia-Pacific region, a report may show Singapore’s industrial production fell 5.8 percent in March from a year earlier, according to a Bloomberg News survey. Thailand’s exports probably grew 0.5 percent last month from a year earlier, a separate survey shows ahead of data due today.

In Europe, a report today will probably show inflation slowed in April in Germany, the euro region’s biggest economy. Consumer prices, calculated using a harmonized European Union method, rose 2.2 percent from 2.3 percent in March, a survey showed ahead of data scheduled for release today. Reports on Italian business confidence and euro-area confidence are also due today.

U.S. Jobs

In the U.S., fewer Americans filed applications for unemployment benefits last week, with jobless claims projected to fall by 11,000 to 375,000 in the week ended April 21, according to the median estimate of 47 economists surveyed by Bloomberg News before a report today.

South Korea’s economy grew 2.8 percent from a year earlier, today’s report showed.

“The biggest challenge facing South Korea’s economy now is weakening export momentum, with Europe suffering a slump and many emerging countries slowing,” Park Sang Hyun, chief economist at HI Investment & Securities Co. in Seoul, said before the GDP report. “The central bank is unlikely to raise interest rates for an extended period.”

Exports increased 3.4 percent in the first quarter from the previous quarter, when overseas shipments declined 2.3 percent, today’s report showed. Corporate investment in facilities rose 10.8 percent from the previous quarter, when it fell 4.3 percent, while government spending increased 3.1 percent after dropping 0.8 percent.

Asian Demand

“We’re performing relatively well given the weak global economy,” Kim Young Bae, director general at the central bank’s statistics department, told reporters in Seoul today. “Our economy seems to be moving along the path that we have expected.”

Kim said that the government’s aggressive fiscal spending and sizable investment by semiconductor chip makers gave an additional boost to the first quarter.

Hong Kong’s export figures this week highlighted weakness in Asian demand as China’s economy cools after a crackdown by the government on real-estate speculation. In Europe, the U.K. yesterday reported an economic contraction in the first quarter that may fuel an anti-austerity backlash.

The risks for South Korea are also geopolitical, with North Korea escalating threats and testing a rocket after Kim Jong Un became the totalitarian state’s new leader. The North celebrated the 80th anniversary of its military, two days after threatening to turn Seoul to “ashes.”

Record Profits

Signs are mixed within the South Korean economy.

Samsung Electronics Co. (005930) posted a record operating profit in the first quarter as gains from selling phones and TVs helped mask a slump in earnings at the chip business. At the same time, Posco, the world’s third-biggest steelmaker by output, said net income fell because of rising raw-material costs and waning demand for the metal used in cars, ships and buildings.

“The economy seems to have turned around a corner but any recovery will come slowly,” said Kim Nam Hyun, a Seoul-based fixed income analyst at Eugene Investment & Futures.

The International Monetary Fund raised its global growth forecast for the first time in more than a year on April 17, estimating a 3.5 percent expansion this year. Two days later, Managing Director Christine Lagarde said a “timid” world recovery is threatened by dark clouds including deleveraging, oil prices and unemployment. Europe is the “epicenter” of potential risks, she said.

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; Stephanie Phang at sphang@bloomberg.net


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