Wednesday, May 8, 2013

South Korea’s Economy

According to the Bank of Korea, despite months of tension on the Korean Peninsula,South Korea’s economy recorded a small but significant quarter-on-quarter (QonQ)GDP rise of 0.9% for the first 3 months of the year. The reports made it clear that this is the highest quarterly growth in two years.

To new president Park Geun-hye, this news has come as a elief. During his first two months in the office was not easy in fact has been difficult due to South Korea’s troublesome northern neighbor off-putting from the economic hold back causing problems the country.

The country’s its reliance on exports is one the South Korea’s main economic weaknesses. Regardless of the actuality that exports raise a little in the initial three months of 2013 exports are composed of about a third of the country’s GDP so ongoing issues in the EU, the U.S., and China persist to discourage future forecasts.

And since “Abenomics” began to be implemented Japanese Yen collapse in the value, making it another worry for South Korean exporters. Yen has touched the 1USD:100Yen mark more than once from highs of 1USD:78Yen in the autumn. A lot of the top Korean export brands, for example Hyundai and Samsung, compete directly with Japanese brands in the world.

Without a doubt, Hyundai’s first quarter bottom line fell 15 percent year-on-year in results announced last April..

The net profit of 2.1 trillion Won (US$1.9 billion) was somewhat liable on the relative strength of Seoul’s currency, together with the wearisome union activity at home throughout the period.

Thus there are still worries that pressure in future months concerning growth in the South Korean economy. After 6 months of holding steady little spending at home as well as with the hesitant viewpoint abroad and a moderately strong Won makes much ammunition to those who are calling on the Bank of Korea to slash interest rates again.

This newest GDP figure endows with some support for the Bank’s. Governor Choongsoo Kim has stayed firm despite the growing calls for action on rates. He highlighted the weak Yen as a concern and, according to Bloomberg, suggested that “financial support” would be provided to vulnerable exporters rather than a tit-for-tat devaluation.

Undeniably, according to some South Korea’s low consumption as due to the consequence of very high levels of personal or individual debt grounds to drag on household spending. Given these situation, then an interest rate cut may make that problem worse by tolerating even additional debt to be accumulate. With that kind of move, it would provide a short term increase to falling consumption, but merely at the cost of longer term pain.

With these thoughts, the most recent GDP growth data will make available an extra piece of ammunition for individuals on the “hold” side of the monetary policy debate. This is above all true given that President Park announced a US$15 billion budget stimulus package early April of this year.

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