Tue, Jul 27, 2010 page10

• S Korean economy grows by 1.5%

  BOOST TO COME? The figures raise the risk of further interest rate increases by the end of this year, but also show that it is weathering the US and European storms

  • BLOOMBERG
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  South Korea’s economy grew faster than expected in the second quarter, bolstering the case for a further increase in interest rates as Asia weathers global risks.

  The GDP increased 1.5 percent from the previous three months, when it gained 2.1 percent, the central bank said in Seoul today. That was more than the 1.3 percent median forecast in a Bloomberg News survey of seven economists. From a year earlier, GDP rose 7.2 percent.

  The growth figures raise the risk of the Bank of Korea boosting rates twice more by year-end, Barclays Capital analysts said today as they increased their GDP growth projections for this year. The central bank this month joined counterparts from Thailand to Taiwan and Malaysia in raising rates and India is forecast to boost borrowing costs tomorrow for the second time this month as Asia leads the global recovery and grapples with price pressures.

  

  Container ships dock at a port in Busan, South Korea’s biggest and the world’s No. 5 container port, about 420km southeast of Seoul, last Wednesday.

  PHOTO: REUTERS

  “The Bank of Korea will be able to raise rates up to 3 percent without much worry about economic growth,” said Lee Sung-kwon, an economist at Shinan Investment Corp in Seoul.

  “It’s only a matter of when” the bank will raise the 2.25 percent benchmark rate, he said. “The economy will continue to grow, though at a slower pace, given robust exports and rising domestic demand.”

  The South Korean won traded at 1,196.30 per US dollar as of 12:27pm in Seoul, little changed from the close on Friday, according to data compiled by Bloomberg. The currency has dropped 7.8 percent in the past three months, Asia’s worst performance. The benchmark Kospi index advanced 0.3 percent to 1,763.01.

  South Korea’s US$929 billion economy approached “its potential output level” and may face inflation pressure, Bank of Korea Governor Kim Choong-soo said on July 9 after raising the benchmark rate to 2.25 percent from a record-low 2 percent, the first increase since the financial crisis.

  “As our economy has shown stronger-than-expected recovery, it may have already entered a phase of expansion,” central bank official Kim Myung-kee told reporters yesterday. “Robust exports are now spilling into domestic demand.”

  South Korean GDP will expand 6.1 percent this year, higher than a previous forecast of 5.7 percent, Barclays Capital analysts including Wai Ho Leong, said in an e-mailed report after the growth data were released.

  The country’s export-driven economy will grow 5.9 percent this year, more than the 5.2 percent predicted in April, the central bank said on July 12. The South Korean finance ministry said on June 24 that the nation needs to normalize fiscal and monetary policies.

  The central bank forecast this month that consumer prices would rise by 2.8 percent this year, compared with the previous estimate of 2.6 percent, and 3.4 percent next year. The bank is targeting inflation of between 2 percent and 4 percent on average through 2012.

  Goods exports climbed 7.1 percent in the second quarter compared with the previous three months, when they rose 3.7 percent, today’s report showed. Private consumption increased 0.8 percent from the first quarter and government spending gained 0.1 percent. Facility investment rose 8.1 percent.

  Quarterly growth in the manufacturing sector accelerated to 5.1 percent in the three months to last month, compared with 4.2 percent in the first quarter, “driven by strong exports of cars, chips and machinery,” the Bank of Korea said in a statement accompanying the release of the GDP figures.

  Companies from Samsung Electronics Co to Hynix Semiconductor Inc reported record earnings in the second quarter, as a drop in the won enhanced the nation’s export competitiveness.

  The sustained expansion is adding to evidence that Asia’s fourth-largest economy is weathering risks to the global recovery from Europe’s debt crisis and elevated US unemployment.
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