Asia-Pacific News

South Korea Growth Hits Three-Year Lows

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South Korea's export-driven economy picked up slightly in the final quarter of 2012 on resilient private consumption, data showed on Thursday, but a firm recovery will likely be delayed until global demand gathers momentum.

Asia's fourth-largest economy grew a seasonally adjusted 0.4 percent in the October-December period on a quarterly basis, a bump up from the meagre 0.1 percent rise in the September quarter which was the slowest growth in over three years.

This was the seventh consecutive quarter with growth of less than 1 percent -- the longest in more than four decades -- and puts pressure on President-elect Park Geun-hye to take more action when she takes office late next month.

"Growth this year for South Korea depends on what policies the new administration comes up with," said Park Hyung-jung, an economist at Meritz Securities in Seoul, adding more stimulus measures were needed, including a further rate cut.

"If the government doesn't act strongly to support the economy and there are no rate cuts, then it will be difficult (to achieve the Bank of Korea's growth goal of 2.8 percent)."

A Reuters survey of 18 analysts had tipped gross domestic product to be up a median 0.5 percent in the October-December period from the prior quarter, with forecasts ranging from growth of 0.2 percent to 1.3 percent.

Despite the pick-up, it fell short of around 0.8 percent growth that the Bank of Korea had projected as recently as in October, underscoring a delayed global recovery due to persistent uncertainties hobbling the major economies.

Highlighting the challenges facing the country, growth for the whole of 2012 slid to a real 2.0 percent, the second-worst in 14 years, from 3.6 percent in 2011. The central bank expects growth to quicken to 2.8 percent this year.

South Korea's economy has been hit hard by the depressed global demand as it had to rely on exports by the likes of Samsung Electronics and Hyundai Motor because high consumer debt capped private consumption.

The Bank of Korea has held the policy interest rate steady at 2.75 percent for three consecutive months after two reductions by a total of a half percentage point but most analysts expect an additional cut as early as next month.

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While admitting to the need for further stimulus, the central bank has adopted a wait-and-see stance to assess the effect from a global wave of stimulus policies as well as its own.

Exports fell a seasonally adjusted 1.2 percent in the December quarter from the previous three-month period after a 2.8 percent rise in the third quarter, the Bank of Korea's advance estimates showed.

Private consumption grew 0.8 percent in the October-December period on a quarterly basis after a 0.7 percent rise in the third quarter. Capital investment was down 2.8 percent following a 4.8 percent drop in the third quarter.

On a year-on-year basis, gross domestic product grew 1.5 percent in the fourth quarter, the central bank estimated, steady from a 1.5 percent gain in the third quarter and compared to a 1.9 percent rise forecast in the same Reuters survey.

President-elect Park from the ruling conservative party has pledged to help reduce the debt-servicing burden on poor households and prioritize policy on creating more quality jobs, although she has not set a specific growth target.

She takes office on Feb. 25 and her Saenuri Party holds a majority in the single-chamber parliament.