South Korea’s economy expanded last quarter at the slowest pace since the global recession, underscoring the case for stimulus by the new government and concern that a weaker yen will curb exports.
Gross domestic product rose 1.5 percent from a year ago, unchanged from January’s initial estimate, the Bank of Korea said today in Seoul. GDP grew 0.3 percent from the third quarter, the second-lowest rate since 2009, which compares with the original figure of 0.4 percent expansion.
Slower growth in Asia’s fourth-largest economy strengthens the rationale for a supplementary budget that President Park Geun Hye may announce this week. It may also add pressure for an interest-rate cut as early as April, after Finance Minister Hyun Oh Seok said March 23 that the yen, down 18 percent against the won in the past six months, is “flashing a red light” for South Korean exports.
“A rate cut in April or within the second quarter would make sense not only because of today’s downward revision, but also because an interest-rate cut then will maximize the effect of stimulus coming soon,” said Sun Yoo, a Seoul-based economist at Woori Investment & Securities Co.
The yen has fallen against all 16 major currencies tracked by Bloomberg in the past six months. The won rose 0.1 percent against the dollar as of 11:51 a.m., poised for a second straight gain. The Kospi stock index was up 0.3 percent after advancing 1.5 percent yesterday.
The Finance Ministry is expected to release its revised growth outlook for 2013 later this week. 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 market does not like the fact that the central bank and the government are giving different signals right now,” said Huh Kwan, a Seoul-based fixed-income trader at Korea Investment & Securities Co. “More are betting on a cut in April given that economic growth has been emphasized by the new government so much of late.”
The won’s gains have been tempered by tensions with North Korea, which has threatened preemptive nuclear strikes and earlier this month renounced the 1953 armistice ending the Korean War.
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.
Ties between South Korea and Japan, strained by an island dispute, may further weaken after Bank of Japan Governor Haruhiko Kuroda reaffirmed last week that his country could bring forward open-ended asset purchases, due to begin next year. Japanese visits to Korea fell five straight months to a two-year low in January, according to the Korea Tourism Organization.
At a 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.
Kuroda told lawmakers today that the U.S., Japan and Europe “have all engaged in large-scale easing, and it is a fact that those countries have seen a trend of capital outflows or a fall in their currencies.” Japan’s easing is not aimed at weakening the yen, he said.
Kuroda also said he wants to achieve a 2 percent inflation target in two years and that the central bank will consider buying more government bonds with longer maturities.
The economy expanded 2 percent in 2012 after a 3.7 percent gain in 2011, the Bank of Korea said today. Per capita gross national income rose to $22,708 last year from $22,451 in 2011.
Exports contracted 1.1 percent and facility investment declined 1.8 percent in the fourth quarter from the previous period, while private consumption rose 0.8 percent.
The won has fallen about 4 percent against the dollar so far this year, after an 8.3 percent gain in 2012. At the same time, the currency’s rise against the yen has hindered South Korean exporters of automobiles and electronics who compete against Japanese rivals abroad.
Samsung Electronics Co. said in January that currency gains could reduce its operating profit by 3 trillion won ($2.7 billion) this year. Kia Motors Corp. reported a 51 percent slump in operating profit for the fourth quarter and said it expects a “difficult year” with a stronger won.
Elsewhere today in the Asia-Pacific region, New Zealand’s February exports of NZ$3.91 billion ($3.26 billion) exceeded the median estimate of eight analysts in a Bloomberg News survey.
In Europe, Hungary’s central bank is forecast to cut the benchmark interest rate by 25 basis points to 5 percent, based on the median estimate of 29 economists. The U.S. will see reports on durable-goods orders and consumer confidence.
Kang Myung Hun, a Bank of Korea board member from 2008 to 2012, said the nation “still lives on exports for growth and a strong won versus a weak yen is definitely hurting.”
“We may need some action to protect us,” Kang, now a professor at Dankook University in Seoul, said earlier this month.
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