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PREVIEW-S.Korea Q3 GDP growth seen steadfast, hurdles remain

Christine Kim
Wednesday, 23 Oct 2013 | 11:25 PM ET

* Reuters poll: Q3 GDP +1.0 pct q/q, +3.2 pct y/y

* Revenue shortfall could bite in Q4, but exports lend hope

* GDP data due at 8 a.m., Oct 25 (2300 GMT, Oct 24

SEOUL, Oct 24 (Reuters) - South Korea's growth in the third quarter likely held fast near a 2-year high on stimulus spending and firmer exports, but weak tax revenue and slack domestic demand will weigh in the current quarter.

Asia's fourth-largest economy was estimated to have grown by a seasonally adjusted 1.0 percent in the July-September period over the previous quarter, a Reuters poll of 16 economists showed, after a 1.1 percent rise posted in the second quarter.

"We haven't seen a sharp improvement this year but the economy is on the mend for sure," said Im No-jung, chief economist at IM Investment & Securities in Seoul. "The pace of the recovery is seen to pick up towards the end of the year and as we enter 2014, in comparison to the first half of this year."

From a year earlier, South Korea's trade-reliant economy likely expanded by 3.2 percent in the third quarter, which would be the strongest growth since the fourth quarter of 2011, the same Reuters survey showed.

Growth could slow in the current quarter, however, as poor tax revenue from a slower-than-expected recovery would hold back fiscal spending for the rest of the year, while global demand is still depressed.

DOMESTIC SPENDING WEAK

The government has said this year's tax revenue would likely miss the target by up to 8 trillion won ($7.5 billion), about 0.7 percent of annual GDP, putting President Park Geun-hye's administration under pressure as it aims to achieve a balanced budget in her five-year term ending 2018.

Government spending was responsible for 0.4 percentage points of the 1.1 percent growth in the second quarter and 0.2 percentage points of the 0.8 percent growth in the first quarter, central bank data shows.

Spending by consumers and companies has yet to achieve a sustained recovery, with sales at the top three department-store chains -- a key measure of retail sales -- falling in two out of the past three months.

But the Bank of Korea expects the economy to quicken to annual growth of 3.8 percent next year after picking up to 2.8 percent this year from 2.0 percent in 2012, believing the recovering global economy will lift South Korea's exports.

"The livening of the global economy, especially in the U.S., will be a major factor for next year's growth," said Lee Sang-jae, an economist at Hyundai Securities in Seoul.

"As the U.S. economy improves, so will the risk factors posed by China and Europe. With the increase of local exports, domestic consumption will also improve."

The International Monetary Fund said a lift in advanced countries' economies would make up for sluggish developing countries, but the IMF still cut its latest world growth forecast to 2.9 percent from 3.1 percent.

($1 = 1060.8500 Korean won)

(Editing by Choonsik Yoo and Eric Meijer)