Thursday, January 23, 2014

South Korea Economic Growth to Ease

South Korea will release an advance estimate of its December quarter GDP numbers on Thursday and growth is expected to have eased slightly to 0.8% on-quarter (3.2% annualised), compared with 1.1% in the preceding two quarters. The GDP figures consist¬ently outperformed
the monthly economic data during the first three quarters of 2013. If the statistical discrepancy needs to be eliminated for the full year of 2013, it will mean a technical slowdown in the December quarter GDP (or a downward revision to the March-September quarter GDP).

Nonetheless, our growth forecast of 2.8% for 2013 still looks achievable. And we project higher growth of 3.5% in 2014. On the fundamental side, the export sector remains competitive despite the Korean won’s appreciation against the Japanese yen. The occupation rates of Korea’s key products (electronics, automobiles) in the key US and China markets have either remained stable or increased over the past year. Export growth is expected to pick up this year, with the assumption that ex¬ternal demand conditions will improve and the yen’s decline will become more gradual.

Domestic demand is expected to remain firm. The residential property market has bottomed out thanks to cyclical reasons and the government’s policy support (a reduction in the property transaction tax). Housing prices in Seoul have stopped declining after a four-year long correction, and nation-wide hous-ing prices have rebounded since the December quarter.

Meanwhile, the labour market is steady and resilient, with the jobless rate sliding to the pre-2008 low of 3.0%. A higher labour participation rate and strong employment growth have been seen in the elderly group (especially females) over the past half a year. This is a positive structural development, which would help address the intrinsic drag on potential GDP growth as a result of an ageing population.