Expectations for the recovery of the Korean economy in the second half of the year are growing as domestic and global economic indicators show signs of improvement.
The manufacturing index in the U.S., China and the Euro zone rose in July, and global oil prices are showing a clear uptrend, boosted by expectations of demand increase. Korea’s exports in July rose 2.6 percent, reversing a downtrend in one month.
Some global investment banks (IB) forecast a positive outlook for the Korean economy, and have raised Korea’s growth rate estimate.
According to the Korea Center for International Finance and the Ministry of Strategy and Finance, many positive signs for the Korean economy can be seen.
For example, Korea’s exports, which dropped by 0.1 percent in June, swung to an increase of 2.6 percent in July. In particular, exports to China and the U.S, which fluctuated between increases and decreases throughout the first half, grew by 14.5 percent and 8.5 percent YoY, respectively.
Exports to the financial crisis-hit European Union (EU) continued to increase, growing by13 percent in June and 8.2 percent in July.
Korea’s export growth was led by semiconductors (21.8 percent ↑), vessels (19.3 percent↑) and mobile communication devices (27.3 percent↑), as the price of semiconductors and vessels increased globally and mobile communication devices became more competitive in the global market.
Deputy Prime Minister and Minister of Strategy and Finance Hyun Oh-Seok expressed his confidence, forecasting that the “Export growth rate will surge from the 0 percent range in the first half to a 5 percent range in the second half.”
Statistics on industrial activities released by Statistics Korea also showed signs of improvement. Although all industry production decreased for two consecutive months and dropped 0.3 percent in July due to the sluggish service industry, industrial production increased by 0.4 percent. In addition, facility investment grew by 4.5 percent, which was a significant increase from June’s 0.8 percent growth.
External circumstances also appear positive. The United States’ manufacturing industry index in July reached a record high in two years, and the new order index and production index exceeded expectations. The number of applicants for unemployment benefits was lower than expected and new automobile sales in July showed the highest growth since 2007.
Both China and the Euro zone’s manufacturing purchasing managers’ index (PMI) reached 50.3, showing an economic expansion. The Stoxx Europe 600 Index also showed that the sales performance of more than half of the companies improved in the second half of the year, which can be analyzed as the worst having passed.
As the global manufacturing industry and the United States’ employment index improve, global oil prices are rising as greater oil demand is expected. Dubai oil prices rose from USD 100 per barrel at the end of June to USD 105.95 per barrel in August. Prices for South Texas oil also jumped by more than 10 percent to reach USD 108.05 from USD 98 over the same period.
Expectations for higher Korean economic growth are building. Bank of America Merrill Lynch forecast that the Korean economy would grow by 2.6 percent at the beginning of the year. However it moved the forecast upward to 2.7 percent. Bank of America Merrill Lynch named an increase in construction investment and fixed assets investment and improved private consumption and exports as reasons for the adjustment.
Barclays also noted that it may move Korea’s economic growth forecast upward to be higher than 2.9 percent, as Korea’s gross domestic product grew by 1.1 percent in the second quarter.
However, some point out that improvements are temporary. The possibility of a slowed Chinese economy, household debts, a sluggish housing market and reduced effects from government spending are the reasons.
An MOSF official noted that key domestic and international indexes are showing improvement, however it is difficult to say that Korea is showing clear economic recovery.
In a February report, the National Assembly Budget Office argued that corporate facility investment should be increased substantially to accelerate economic growth in the second half and reach 2.7 percent economic growth, a target for the Korean government.
The Korean government also recognizes that corporate investment will decide the success or failure of Korea’s economic growth in the second half of the year. Deputy Prime Minister Hyun’s comment that the core of economic policies in the second half is empowering companies also supports this fact.
Another MOSF official said that corporate investment in the first half reached 30 percent of what they pledged in the beginning of the year and companies will have the capability to invest in the second half. He added that the Korean government will focus on attracting investment from companies with the third and fourth investment promotion measures.
Source Text
Source: Yonhap News (Aug. 8, 2013)
** This article was translated from the Korean.