South Korea Grows Less Than Forecast as Won Strengthens
(Updates with Bank of Korea statement in 10th paragraph.)
Jan. 24 (Bloomberg) -- South Korea’s economy expanded less than analysts forecast in the fourth quarter as gains in the won, Asia’s best performing currency of the past six months, threaten to restrain exports in 2013.
Gross domestic product grew 1.5 percent from a year earlier, unchanged from the expansion in the third quarter, the Bank of Korea said today. That compares with the median 1.8 percent estimate of 12 economists surveyed by Bloomberg News. From a quarter ago, Asia’s fourth-largest economy grew 0.4 percent.
South Korea’s export growth may be capped this year as Japanese Prime Minister Shinzo Abe’s campaign to drive down the yen makes his nation’s products relatively cheaper. In Seoul, Finance Minister Bahk Jae Wan yesterday signaled that Korean officials may do more to ease currency volatility, aiding exporters such as Samsung Electronics Co. that account for nearly half of gross domestic product.
“Japan is trying to boost its economy by weakening the currency for exporters at the expense of its consumers and other countries,” said Lee Sung Kwon, an economist at Shinhan Investment Corp. in Seoul. “South Korea will be hit the hardest among others as it is in direct competition with Japan over many products -- from cars to electronics.”
The Korean currency fell 0.1 percent to 1,067.50 per dollar today in Seoul, according to data compiled by Bloomberg. The won rose 22 percent against the yen and 7.5 percent against the dollar over the past six months. Exports unexpectedly fell last month for the first time in three months.
Bahk, the finance minister, said yesterday that the won’s gains may put exporters at risk, and that South Korea may raise Japan’s policies with Group of 20 finance ministers and central bankers next month in Moscow. Japan’s actions may harm a fragile economic recovery, according to Michael Meister, parliamentary finance spokesman for German Chancellor Angela Merkel’s party.
Japan’s top currency official pushed back against international criticism of his nation’s monetary policy yesterday evening, saying that the central bank isn’t engaged in a competitive devaluation of the yen.
The Bank of Japan’s stance is “aimed at ending persistent deflation, so criticism that it’s a form of competitive devaluation is misplaced,” Vice Finance Minister Takehiko Nakao said in an interview in Tokyo. “Recent developments toward a weaker yen reflect the yen’s correction phase from one-sided and excessive gains until last year.”
The Bank of Korea lowered its forecast for the nation’s 2013 growth on Jan. 11 to 2.8 percent from an October estimate of 3.2 percent. The economy will expand 3.8 percent next year, and consumer inflation will accelerate to 2.8 percent from this year’s 2.5 percent, according to the central bank’s projection.
Exports and construction investment fell quarter-on-quarter while private consumption rose, the Bank of Korea said in a statement. Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul, said that an interest-rate cut is possible if growth falters on weak sentiment and a strong currency.
South Korea’s incoming president, Park Geun Hye, will take over a government that plans to spend 72 percent of the budget in the first half of the year to aid a recovery. The government already announced this week a number of financial support measures for small exporters suffering from the strengthening of the won.
“The economy has passed a bottom but the road ahead still looks bumpy,” Lee Jae Hyung, a fixed-income analyst at Tongyang Securities Inc. in Seoul, said before the release. “Policy makers will likely wait and see the impact of the fiscal effort before cutting the interest rate again.”
-- With assistance from Sungwoo Park and Rose Kim in Seoul and Michael Munoz in Hong Kong. Editors: Nicholas Wadhams, Paul Panckhurst