South Korea GDP Continues Strong Rebound

South Korea announced its Q1 2010 GDP results today, with a solid 1.8% growth rate since Q4 2009; beating consensus for 1.5% growth, and 0.2% in the previous quarter. On an annual basis the South Korean economy grew 7.8%, continuing a strong export led rebound from its brief recession as noted in our review of OECD member GDP stats in the weekend.


The Bank of Korea commented in the release that the manufacturing sector saw strength driven by the electronics sector (likely a product of an export recovery, partially driven by restocking, and partially by normalization of demand for what have now become staples). It also noted strength in civil engineering driven construction (stimulus?), so a pretty typical pattern as far as economic recoveries go at the moment:

"On the production side, the manufacturing sector shifted to positive growth rate of 3.6 percent. This was mainly due to an upturn in electrical and electronic equipment manufacturing such as semiconductors and electronic products. The construction sector increased 1.6 percent, propelled by civil engineering. Services rose by 1.5 percent owing to growth in the transport & storage and wholesale & retail trade sectors."

The KRW (Korean Won) is currently trading around 1,100 against the USD after strengthening almost 20% over the past year. Likewise the KOSPI Composite Index is trading around 1,750 having rallied about 30% over the past year as the Korean economy has shown credible resilience through the global financial crisis.

In terms of the outlook for the South Korean economy, the Bank of Korea is forecasting 5.2% (Credit Suisse 6.2%, Barclays 5.7%) growth for 2010. Most analysts expect the Bank of Korea to raise rates from a record low 2% in the second half of the year as it weighs concerns about exiting too early from policy stimulus (and faces increasing pressure and influence from the government).

Recently Moody's also raised its rating for the country to A1, "The Korean economy is responding rapidly to the improving global economic environment, and the government has put in place supportive policy measures which should help sustain economic growth over time,". Thus the comment that South Korea has gotten off lightly from the global financial crisis rings true for now, in terms of its strong fundamentals and geographic advantages (China +ve, albeit North Korea -ve), the Republic of Korea is probably well positioned for future growth.

Sources
Econ Grapher Analytics www.econgrapher.com
Bank of Korea eng.bok.or.kr

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