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Korea Cuts 2013 Growth Estimate as European Crisis Linger

December 27, 2012

South Korea Cuts 2013 Growth Estimate as European Crisis Lingers

People walk through Gangnam subway station in Seoul, South Korea. Asia’s fourth-largest economy expanded 1.5 percent in the third quarter from a year earlier. Photographer: SeongJoon Cho/Bloomberg

South Korea lowered its growth forecasts for this year and for 2013 in the first revisions since a new president was elected on Dec. 19.

Gross domestic product will expand 3 percent next year, the Finance Ministry said in a statement in Sejong, less than the 4 percent predicted in September. Growth may be 2.1 percent this year, versus a previous 3.3 percent estimate.

The update brings the government’s forecasts closer to those of private economists and the central bank as Europe’s debt crisis caps demand for the nation’s exports. The pace of expansion next year may partly depend on the extent of any extra spending by president-elect Park Geun Hye, who will take office in February.

“Downside risks from Europe are bigger than anticipated,” said Choi Sang Mok, a director general at the ministry.

The Kospi index of stocks fell 0.3 percent as of 1:43 p.m. in Seoul, paring gains for the year to 8.3 percent. The won appreciated 0.1 percent to 1,072.00 per dollar, according to data compiled by Bloomberg, with this year’s 7.5 percent advance the biggest among Asia’s 11 most-traded currencies.

The Bank of Korea said today that it will support the recovery while also examining possible economic imbalances “arising from the extended duration of its accommodative monetary policy stance.”

Improving Outlook

South Korea’s growth rate is likely to gradually increase from the middle of next year as the global economy recovers, the central bank said in a report today. The benchmark interest rate is at 2.75 percent compared with 5.25 percent before the global financial crisis.

Some South Korean companies are already benefiting from an improved economic outlook. Samsung Electronics Co. (005930)’s fourth- quarter operating profit may reach 9.05 trillion won, exceeding consensus estimates, according to a Daishin Securities Co. (003540) report this week. Kumho Petro Chemical Co. (011780)’s operating profit may increase 51 percent in 2013 on expected improvement in synthetic rubber demand and capacity expansion, BS Securities said in a report yesterday.

South Korea’s current-account surplus may fall to $30 billion in 2013 from an estimated $42 billion this year, according to the finance ministry. Exports are projected to rise 4.3 percent in 2013 and inflation will be 2.7 percent, it estimated. Asia’s fourth-largest economy expanded 1.5 percent in the third quarter from a year earlier.

“One big variable is whether the new government will roll out stimulus or not,” said Sun Yoo, a Seoul-based economist at Woori Investment & Securities.

The BOK said in its report today that any upward pressures on consumer prices “are not expected to be large.”

To contact the reporter on this story: Cynthia Kim in Seoul at ckim170@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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