South Korea: Economy Still Growing Strongly

By Glenn Dyer | More Articles by Glenn Dyer

Australia’s third most important export market, South Korea, continues to grow strongly, as does the chances of another rate rise.

The country’s central bank reported yesterday that growth accelerated in the first quarter due to strong exports and improving domestic demand, fuelling inflationary pressure.

The economy is currently on track to meet or slightly exceed the central bank’s forecast for 2011 of growth of 4.5%, although that will depend on what happens this quarter with talk of a slowing in activity.

Gross domestic product rose 1.4% in January-March from the fourth quarter of 2010, when the economy grew 0.5%.

But real gross domestic income fell 0.6% as the country’s terms of trade fell thanks to the rising cost of oil imports.

Compared to a year earlier the economy grew 4.2% in January-March, down from the 4.7% rate in the December quarter.

"Despite a decline in construction and facilities investments, exports grew strongly while private consumption also increased steadily," the central bank said in a statement.

Asia’s fourth largest economy grew 6.2% in 2010, its fastest expansion for eight years.

 

The bank forecasts an expansion of 4.5% for the whole of this year.

Economists in Seoul expect growth to slow to around 0.9% this quarter.

But inflation is rising, despite a rise of 0.25% in the central bank’s key rate in March.

The bank forecasts inflation will speed up to 3.9% this year from 2.9% last year.

Rising global oil and other raw material prices (such as Australian iron ore and coal!) is boosting cost pressures for sections of industry, although the high value of the won is (like Australia) easing some of those pressures.

The Bank of Korea kept interest rates steady at its April meeting. It has already raised rates four times in less than a year.

Exports, which account for about 50% of the South Korean economy, rose 3.3% in the first quarter from three months earlier. Higher shipments of semiconductors, electronic parts and cars helped boost exports.

Private consumption grew 0.5% quarter on-quarter, but business investment fell 0.8% led by a contraction in semiconductor equipment, with construction investment dropping 6.7% as well.

Manufacturing grew 3.2% in the first three months of this year due to rapid growth of steel and cars and services rose 1.3% thanks to gains in wholesaling, retail, finance and insurance.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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