Inteligencia y Seguridad Frente Externo En Profundidad Economia y Finanzas Transparencia
  En Parrilla Medio Ambiente Sociedad High Tech Contacto
Economia y Finanzas  
 

Significance: Newly released data show that the Korean economy grew at a rapid 9.7% annual rate in the second quarter, rebounding sharply from the poor performance of the previous two quarters.

Implications: Korea's impressive growth makes it one of the first countries to—apparently—emerge from the global recession. It is all the more impressive that Korea did this with solid export growth, showing that Korean goods are in high demand overseas despite the slow global economy.

Outlook: The rapid growth in the second quarter is likely to mark the beginning of post-recession recovery for Korea. There is, however, a chance that this is simply a correction to the weakness of the previous quarters, and that the economy could flatten in the near term.

27/07/2009 | South Korea Posts Strong Growth in Q2

Global Insight Staff

South Korean GDP grew at a nearly 10% pace in April-June, a sharp rebound from the previous two quarters.

 

IHS Global Insight Perspective 

 

Data for the second quarter released by South Korea show that GDP increased 2.3% over the previous quarter; this equates to an annualised growth rate of 9.7%, though GDP was still down 2.5% compared to a year earlier. The boom in the second quarter was due to several factors. Exports rose sharply quarter-on-quarter—by more than 11%, or 50+% at an annual rate—with a large share of the merchandise being sold to China. To some extent this is not surprising, since Korean goods are popular around the world, but it is impressive that China and other countries would increase their purchases during a global recession. Korean households also increased their consumption spending in the second quarter; much of this was a correction to the sharp fall in late 2008, though government-sponsored incentives (as part of the stimulus plan) also helped retail sales. Lastly, capital expenditures rose, partly in conjunction with rising exports, but also as a correction to the sharp decline of the previous two quarters.

A Surprisingly Strong Performance

With the global economy in a slump, and with the financial sector still reeling from its year-old crisis, one might think that the Korean economy would continue to fall. After all, weak demand overseas should constrain Korean exports, which in turn comprise over half of Korea's GDP. In addition the financial crisis led to a U.S. dollar shortage among Korean corporations, as short-term commercial financing dried up. Nonetheless, the Korean economy in fact appears to be recovering rapidly. Demand for Korean goods has returned, reflecting the high-value-added quality of these exports, and also their competitive pricing thanks to the weak won. In addition, stimulus programmes in other countries—to the extent that they encourage capital spending—may be helping Korean equipment exports. Lastly, the financial crisis proved to be of minor importance: Korean banks had little exposure to the sub-prime mortgages and related derivatives that sank Wall Street, and the Bank of Korea made its huge U.S. dollar reserve holdings available to corporations that had difficulty getting dollar financing.

Household Spending Picks Up

The rebound in consumption is of note. Korea, as is Asia in general, is famous for high savings and low household spending. This has led to criticism that these countries are too dependent on exports for growth, and thus need to stimulate domestic demand. Nevertheless, the increase in private consumption in the second quarter—up 3.3% quarter-on-quarter, or a 14.0% annual rate—is significant, since it occurred without any accompanying increase in personal income. On the downside, consumption is still lower than a year earlier, so the second-quarter bump may be partly a correction to the sharp fall in late 2008. It is also likely that the government's stimulus programme, with various spending and tax incentives, promoted private spending as well.

Outlook and Implications

Near-Term Risks Continue

Optimistically, the good performance in the second quarter suggests that Korea has returned to a growth path, and is one of the first countries to escape from the global recession. This is the most likely scenario given Korea's advantages—fast productivity growth, a competitive real exchange rate, and a healthy labour market. Thus the subsequent quarters should also see gains in GDP, though probably not as high as the exceptional increase seen in the second quarter. There is, however, the possibility that the recent growth jump is unsustainable: that it is simply a correction to an excessive decline of previous quarters, with perhaps a short-term rise in purchases from China. In that case, the second half of 2009 could see GDP flatten, or even decline if the government reduces its stimulus spending. This "W-shaped" scenario remains unlikely, but close attention will need to be paid to high-frequency indicators, and to policymakers' actions, in the near term to make sure this pessimistic outcome does not materialise.

Global Insight (Reino Unido)

 


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