GO
Loading...

South Korea's Economic Growth Slowed in 4th Quarter

Reuters
Thursday, 25 Jan 2007 | 12:32 AM ET

South Korea's economy grew a slower-than-expected 0.8% in the fourth quarter, undermined by a fall in exports and a government crackdown on home loans, data showed on Thursday.

The seasonally adjusted rise in gross domestic product was below analysts' forecasts for a 1.1% increase and was slower than the third-quarter's 1.1% pace of growth, reinforcing arguments against a near-term interest rate rise.

"Due to the central bank's measures to curb liquidity recently, domestic demand might have slowed in the first quarter," said Park Sang Hyun, chief economist at CJ Investment & Securities. "Given the trend, the Bank of Korea should wait and see before making any move in the monetary policy."

Still, the latest figures showed that Asia's third-largest economy after Japan and China expanded for the 15th straight quarter despite the first seasonally adjusted fall in exports in two years and the won's rise to nine-year highs.

The central bank played down the export weakness. "We expect the economy to maintain growth momentum this year on the back of resilient exports to diverse markets and healthy capital spending by companies," Lee Kwang June, head of the central bank's statistics department, told reporters.

GDP in the fourth quarter was 4.0% higher than a year earlier, the data from the Bank of Korea showed. This was below a median forecast in a Reuters poll for 4.2% growth and followed annual expansion of 4.8% in the third quarter.

In all of 2006, GDP increased 5.0%, accelerating from a provisional 4.0% rise in 2005 and marking the fastest expansion since 7% in 2002.

Investors shrugged off the data. Treasury bond March futures were flat at 108.02 in Asian trading, while the benchmark stock market had gained 0.24%. The Bank of Korea, which next reviews interest rates on Feb. 8, has held interest rates steady since August.

But analysts say a continued rise in house prices could prompt the central bank to lift credit costs further.

Annual Growth Rate

Merchandise exports suffered their first quarterly fall in more than two years, dropping a seasonally adjusted 1% in the fourth quarter from a 2.9% rise in the third quarter, the data showed. The last time exports fell was in the third quarter of 2004.

Imports also fell in the latest quarter. Manufacturing and construction growth slowed, in contrast to a pick up in momentum in the service sector and private consumption.

The central bank forecast in December that growth would slow in 2007 to 4.4% on slowing demand both at home and abroad. The pace of a slowdown in the U.S. economy will be a key factor in the outlook for South Korea's exports this year.

Economists also see the economy picking up again late this year, in line with a possible rebound in global demand for electronics goods and an expected recovery in local construction spending.

South Korea's economy derives slightly more than half of its GDP from private consumption, compared with about a quarter from the export-driven manufacturing sector.

Featured

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video