South Korea’s economy grew faster than expected in the final quarter of 2007, driven by increased corporate investment and a recovery in domestic consumption, the Bank of Korea said today. Korea's gross domestic product rose a seasonably adjusted 1.5 per cent in the October-December period, Up from 1.3 per cent in the previous quarter.The economy expanded 5.5 per cent from a year earlier, the fastest pace in almost two years.
The robust growth was propelled by stronger corporate spending with corporate investment in factories surging 4.4 per cent in the last quarter, reversing the third quarter’s drop. Increasing consumption also contributed to economic growth with private consumption rising 1.1 per cent.
Exports remained resilient in the final three months of 2007 thanks to strong demand from China. Exports jumped 7.3 per cent, accelerating from a 1.5 per cent growth in the third quarter. It was the biggest increase since the final quarter of 2003.
Shipments to China, South Korea’s biggest export market, soared 18 per cent from January 1 to December 20 and exports to the Middle East jumped almost 40 per cent.
The central bank is likely to come under growing pressure to cut interest rates as higher oil prices and grwoing problems in the US economy and Europe are expected to threaten export growth. The principal problem is that the bank has little room to cut interest rates due to rising inflation.
The central bank has forecast that growth in Asia’s third-largest economy will slow to 4.7 per cent this year, much lower than President-elect Lee Myung-bak’s growth target of 6 per cent. The economy expanded 4.9 per cent last year from the previous year’s 5.0 per cent growth.
Friday, January 25, 2008
Sunday, January 6, 2008
FDI in Korea 2007
Planned foreign direct investment into South Korea fell for the third consecutive year in 2007, the commerce ministry said on Sunday, raising little hope that the situation would change in 2008. New FDI commitments fell 6.5 per cent to $10.5bn in 2007, although the figure for the fourth quarter increased 12.6 per cent over the previous year to $4.19bn. The ministry forecast steady FDI inflows of around $10bn (€6.8bn, £5.1bn) for 2008
The shrinking FDI plans underline China's emergence as a magnet for foreign investment. The investment climate in South Korea has also deteriorated as a result of increasing scrutiny of foreign capital and new regulations against hostile takeovers. South Korea has welcomed greenfield investment by foreign investors but there is increasingly hostile public sentiment towards foreign buyers.
South Korea’s outgoing government plans to revise foreign investment regulations to make exclusions on national security grounds more specific and provide stronger protection for major Korean companies targeted by overseas investors.
Pledged FDI in the manufacturing sector slumped 36.7 per cent last year to $2.69bn but rose by 14.9 per cent to $7.61bn in the service sector. Despite the US subprime loan crisis, planned FDI from the US rose 37.2 per cent to $2.34bn but FDI commitments from Japan dropped by 53 per cent to $990m and those from the European Union fell 13 per cent to $4.33bn.
There are some hopes that foreign investment could rebound this year as the next government is expected to adopt more investor-friendly policies. President-elect Lee Myung-bak, who takes office on February 25, has pledged to boost economic growth by attracting more foreign investment and encouraging corporate investment. But here, as in so many other cases, the proof of the pudding will be in the eating.
“The appreciating won and slowing economic growth in the US and other developed nations remain as negative factors,” the ministry said in a statement.
The shrinking FDI plans underline China's emergence as a magnet for foreign investment. The investment climate in South Korea has also deteriorated as a result of increasing scrutiny of foreign capital and new regulations against hostile takeovers. South Korea has welcomed greenfield investment by foreign investors but there is increasingly hostile public sentiment towards foreign buyers.
South Korea’s outgoing government plans to revise foreign investment regulations to make exclusions on national security grounds more specific and provide stronger protection for major Korean companies targeted by overseas investors.
Pledged FDI in the manufacturing sector slumped 36.7 per cent last year to $2.69bn but rose by 14.9 per cent to $7.61bn in the service sector. Despite the US subprime loan crisis, planned FDI from the US rose 37.2 per cent to $2.34bn but FDI commitments from Japan dropped by 53 per cent to $990m and those from the European Union fell 13 per cent to $4.33bn.
There are some hopes that foreign investment could rebound this year as the next government is expected to adopt more investor-friendly policies. President-elect Lee Myung-bak, who takes office on February 25, has pledged to boost economic growth by attracting more foreign investment and encouraging corporate investment. But here, as in so many other cases, the proof of the pudding will be in the eating.
Friday, January 4, 2008
South Korea Debtor Bail Out Plan
South Korea’s incoming government is planning a huge bail-out covering 7.2m consumer debtors behind on loan repayments or with poor credit ratings in an effort to spur consumption and prevent a repeat of a 2004 consumer credit crisis.
President-elect Lee Myung-bak, an ex-Hyundai executive, promised help for consumer debtors during the campaign leading up to last month’s presidential election. Economists have warned that South Korean households and small companies are facing a growing risk of default amid rising interest rates and a credit squeeze at the country’s banks.
But South Korea’s top financial regulator, the Financial Supervisory Commission, took things a step forward on Thursday when it outlined a bail-out plan to Mr Lee’s transition team.
Under the plan, credit delinquents with a small amount of debt will have their interest payments reduced and repayment deadlines extended. Their credit records will also be cleared.
Chang Su-man, a member of the transition team’s economic subcommittee, said the timing and the details of the plan have not yet been decided and it still required extensive discussions.
“There is no exact data about how much it will cost, but the plan will be implemented because it is one of Mr Lee’s main campaign promises,” Mr Chang said.
Local newspapers said the planned measures could cost the government about $11bn. Mr Chang declined to confirm that, but pointed out that that would be a small amount given that Seoul has spent $179bn to bail out struggling financial institutions and companies since the 1997-98 Asian financial crisis.
The number of South Korean credit delinquents has fallen significantly since the government rescued about 1m debtors in 2004 after the bursting of a credit card bubble left banks with bad debts.
Debtors with more than Won500,000 ($534) owed and more than three months behind on their payments stood at 2.7m at the end of June, down from a peak of 3.72m in 2003. But, according to finance ministry figures, some 7m South Koreans with poor credit ratings also owe about Won18,000bn in total.
Critics said the forthcoming plan could cause serious moral hazard and hurt the country’s banks, although Lim Ji-won, an economist at JPMorgan, called it a “pre-emptive” measure as the number of defaults was likely to rise with interest rates.
President-elect Lee Myung-bak, an ex-Hyundai executive, promised help for consumer debtors during the campaign leading up to last month’s presidential election. Economists have warned that South Korean households and small companies are facing a growing risk of default amid rising interest rates and a credit squeeze at the country’s banks.
But South Korea’s top financial regulator, the Financial Supervisory Commission, took things a step forward on Thursday when it outlined a bail-out plan to Mr Lee’s transition team.
Under the plan, credit delinquents with a small amount of debt will have their interest payments reduced and repayment deadlines extended. Their credit records will also be cleared.
Chang Su-man, a member of the transition team’s economic subcommittee, said the timing and the details of the plan have not yet been decided and it still required extensive discussions.
“There is no exact data about how much it will cost, but the plan will be implemented because it is one of Mr Lee’s main campaign promises,” Mr Chang said.
Local newspapers said the planned measures could cost the government about $11bn. Mr Chang declined to confirm that, but pointed out that that would be a small amount given that Seoul has spent $179bn to bail out struggling financial institutions and companies since the 1997-98 Asian financial crisis.
The number of South Korean credit delinquents has fallen significantly since the government rescued about 1m debtors in 2004 after the bursting of a credit card bubble left banks with bad debts.
Debtors with more than Won500,000 ($534) owed and more than three months behind on their payments stood at 2.7m at the end of June, down from a peak of 3.72m in 2003. But, according to finance ministry figures, some 7m South Koreans with poor credit ratings also owe about Won18,000bn in total.
Critics said the forthcoming plan could cause serious moral hazard and hurt the country’s banks, although Lim Ji-won, an economist at JPMorgan, called it a “pre-emptive” measure as the number of defaults was likely to rise with interest rates.
Thursday, January 3, 2008
Seoul Attack It's Home Grown Sub-Prime Problem
South Korea’s incoming government is planning a huge bail-out covering 7.2m consumer debtors behind on loan repayments or with poor credit ratings in an effort to spur consumption and prevent a repeat of a 2004 consumer credit crisis. President-elect Lee Myung-bak, an ex-Hyundai executive, promised help for consumer debtors during the campaign leading up to last month’s presidential election. South Korean households and small companies are facing a growing risk of default amid rising interest rates and a credit squeeze at the country’s banks.
But South Korea’s top financial regulator, the Financial Supervisory Commission, took things a step forward on Thursday when it outlined a bail-out plan to Mr Lee’s transition team. Under the plan, credit delinquents with a small amount of debt will have their interest payments reduced and repayment deadlines extended. Their credit records will also be cleared.
Local newspapers are saying that the planned measures could cost the government about $11bn.
The number of South Korean credit delinquents has fallen significantly since the government rescued about 1m debtors in 2004 after the bursting of a credit card bubble left banks with bad debts.
The number of debtors with more than Won500,000 ($534) owed and more than three months arrears on their payments stood at 2.7m at the end of June, down from a peak of 3.72m in 2003. But, according to finance ministry figures, some 7m South Koreans with poor credit ratings also owe about Won18,000bn in total.
But South Korea’s top financial regulator, the Financial Supervisory Commission, took things a step forward on Thursday when it outlined a bail-out plan to Mr Lee’s transition team. Under the plan, credit delinquents with a small amount of debt will have their interest payments reduced and repayment deadlines extended. Their credit records will also be cleared.
Local newspapers are saying that the planned measures could cost the government about $11bn.
The number of South Korean credit delinquents has fallen significantly since the government rescued about 1m debtors in 2004 after the bursting of a credit card bubble left banks with bad debts.
The number of debtors with more than Won500,000 ($534) owed and more than three months arrears on their payments stood at 2.7m at the end of June, down from a peak of 3.72m in 2003. But, according to finance ministry figures, some 7m South Koreans with poor credit ratings also owe about Won18,000bn in total.
Monday, December 24, 2007
Merry Xmas and A Happy New Year
Well, a Merry Xmas and a Happy New Year to all my readers. Thank you for taking the time and trouble to pass-by. This blog will now - failing major and surprising new developments in the global economy - be offline till the end of the first week in January, or till after the festival of Los Reyes Magos in Spain (for those of you who know what this is all about). Come to think of it, maybe this is just what our ever hopeful central bankers are in need of even as I write - some surprise presents from the three wise men - but I fear that this year if these worthy gentlemen do somehow show at the next G7 meet, the star in the east which draws them will not be the one described in the traditional texts, but in all likelihood the rising star of India.
Credit crunch, did someone use the expression credit crunch?
Credit crunch, did someone use the expression credit crunch?
South Korean Q4 2007 Consumer Confidence
South Korea's consumer confidence declined from a five-year high, signaling spending may slow and crimp growth in Asia's fourth-largest economy. The sentiment index fell to 106 in the fourth quarter, the lowest in three quarters, from 112, the Bank of Korea said today in a report in Seoul. A reading higher than 100 indicates optimists outnumber pessimists.
The benchmark Kospi index of stocks has fallen 8 percent from a Nov. 1 record of 2085.45 on concern U.S. subprime-related losses will slow the global economy. Lehman Brothers Holdings Inc. this month cut its 2008 growth forecast for South Korea to 4.6 percent from 4.7 percent.
The yield on a five-year government bond rose 2 basis points to 5.87 percent at 3:00 p.m. in Seoul and the won gained 0.1 percent to 939.65 versus the dollar. The Kospi climbed 2.2 percent.
South Koreans' debt-servicing costs have climbed steadily as the central bank has pushed borrowing costs to a six-year high. The Bank of Korea raised rates in July and August to curb household debt that topped 600 trillion won ($640 billion) for the first time in September.
The benchmark Kospi index of stocks has fallen 8 percent from a Nov. 1 record of 2085.45 on concern U.S. subprime-related losses will slow the global economy. Lehman Brothers Holdings Inc. this month cut its 2008 growth forecast for South Korea to 4.6 percent from 4.7 percent.
The yield on a five-year government bond rose 2 basis points to 5.87 percent at 3:00 p.m. in Seoul and the won gained 0.1 percent to 939.65 versus the dollar. The Kospi climbed 2.2 percent.
Confidence fell as ``sentiment on living conditions and the local economy weakened,'' the central bank said. ``The number of consumers with a negative view on the economy rose sharply.''
South Koreans' debt-servicing costs have climbed steadily as the central bank has pushed borrowing costs to a six-year high. The Bank of Korea raised rates in July and August to curb household debt that topped 600 trillion won ($640 billion) for the first time in September.
Friday, November 2, 2007
Land of the Rising Won
From Bloomberg this morning:
South Korean Finance Minister Kwon Okyu said the nation's exporters will cope with the won's surge against the dollar, helping economic growth accelerate next year.
The won reached a decade-high this week and companies such as Hyundai Motor Co. say it will climb further, forcing them to cut costs to boost earnings. Kwon, who expects the won's rally to run out of steam, said rising shipments and a pickup in domestic demand mean the economy will grow 4.8 percent in 2007 and 5 percent next year.
``Even with global dollar weaknesses, Korean exports will continue their robust growth,'' Kwon, 55, said in an Oct. 29 interview in Gwacheon, near Seoul. ``Our competitiveness nowadays doesn't depend on price competition, rather it depends on the quality, technology and so on,'' he said.
Samsung Electronics Co., South Korea's biggest exporter, this year surpassed Motorola Inc. to become the world's second- largest maker of mobile phones behind Nokia Oyj as it focused on more expensive handsets. Exports climbed to a record in October as higher shipments to China and Europe helped cushion the $887 billion economy from a slowdown in U.S. demand.
``Korean exporters have successfully diversified their markets and enhanced their product quality,'' said Kwon Young Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``As a result, Korean firms are better placed to weather shocks in individual overseas economies than in the past.''
Chinese Partner
Exports to China surged 33.1 percent in the first 20 days of October from the same period a year earlier, the Commerce Ministry said yesterday. China replaced the U.S. as South Korea's biggest export market in 2003.
Gross domestic product expanded 5.2 percent in the second quarter from a year earlier, the fastest pace in almost two years. The economy has grown in each quarter since the second three months of 2003, the longest continuous expansion since one that ended in 1992.
Between the beginning of 2004 and the end of 2006, South Korea's won climbed 28 percent, making it the biggest gainer among the 10 most actively traded Asian currencies tracked by Bloomberg. Exports, which account for 40 percent of GDP, have grown 19 percent a year on average in the same period.
The won fell 0.4 percent to 907.20 against the dollar at 12:09 p.m. in Seoul.
Kwon yesterday told parliament that the government will continue to buy or sell the currency to curb speculation.
Currency Speculation
``The government is clearly committed to blocking any speculative move'' in the foreign-exchange market, Kwon said at a parliamentary hearing.
Kwon's comments on exporters and the won contrast with those of Kim Dong Jin, Hyundai Motor's vice chairman, who said this week the currency's advance is the ``No. 1 obstacle'' for South Korea's third-biggest exporter.
Kwon and Kim also disagree on the currency's direction. Hyundai's Kim sees further gains. Kwon reiterated his view the currency's advance will cease because demand will fall along with the nation's current account surplus.
``I don't think the currency has reason to appreciate further because the rate is determined by supply and demand,'' Kwon said. He predicts South Korea's current account surplus will drop to zero this year as more Koreans travel and invest overseas, reducing demand for won.
The Bank of Korea estimates the surplus this year will be $2 billion, down from $6 billion in 2006. The government earlier this year relaxed regulations so that individuals can invest more overseas. Some foreign exchange traders said a shrinking current-account gap probably won't be enough to curb the won.
`Wishful Thinking'
``It's wishful thinking to expect a current account deficit to curb the won's gains,'' said Kim Tae Wan, a Seoul-based currency dealer with Kookmin Bank, South Korea's biggest lender. ``New Zealand and Australia have huge deficits but their currencies are rocketing.''
Australia has recorded a current account deficit each quarter since 1973 with the shortfall climbing to a record A$16 billion ($14.6 billion) in the second quarter. The Australian dollar has surged 16 percent this year to a 23-year high. New Zealand's current account gap is 8.2 percent of gross domestic product and its currency has gained 8 percent this year.
Kwon said South Korea's rising demand for electricity gives him confidence to predict a rebound in domestic demand after a slowdown in the second quarter.
Electricity sales climbed 4.2 percent in September, after gaining 6.1 percent in August and 6.6 percent in July, according to Korea Electric Power Corp.
``Electricity demand is still increasing substantially,'' Kwon said. ``That means overall sentiment isn't that bad.''
Kwon said there are still risks to growth, including the U.S. housing recession and record oil prices.
A U.S. slowdown would be mitigated by rising exports to China and India, while the current oil price is ``endurable,'' he said.
The price of crude oil climbed beyond $96 a barrel for the first time yesterday and has surged 57 percent this year. South Korea imports almost all of its oil from abroad.
South Korean Finance Minister Kwon Okyu said the nation's exporters will cope with the won's surge against the dollar, helping economic growth accelerate next year.
The won reached a decade-high this week and companies such as Hyundai Motor Co. say it will climb further, forcing them to cut costs to boost earnings. Kwon, who expects the won's rally to run out of steam, said rising shipments and a pickup in domestic demand mean the economy will grow 4.8 percent in 2007 and 5 percent next year.
``Even with global dollar weaknesses, Korean exports will continue their robust growth,'' Kwon, 55, said in an Oct. 29 interview in Gwacheon, near Seoul. ``Our competitiveness nowadays doesn't depend on price competition, rather it depends on the quality, technology and so on,'' he said.
Samsung Electronics Co., South Korea's biggest exporter, this year surpassed Motorola Inc. to become the world's second- largest maker of mobile phones behind Nokia Oyj as it focused on more expensive handsets. Exports climbed to a record in October as higher shipments to China and Europe helped cushion the $887 billion economy from a slowdown in U.S. demand.
``Korean exporters have successfully diversified their markets and enhanced their product quality,'' said Kwon Young Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``As a result, Korean firms are better placed to weather shocks in individual overseas economies than in the past.''
Chinese Partner
Exports to China surged 33.1 percent in the first 20 days of October from the same period a year earlier, the Commerce Ministry said yesterday. China replaced the U.S. as South Korea's biggest export market in 2003.
Gross domestic product expanded 5.2 percent in the second quarter from a year earlier, the fastest pace in almost two years. The economy has grown in each quarter since the second three months of 2003, the longest continuous expansion since one that ended in 1992.
Between the beginning of 2004 and the end of 2006, South Korea's won climbed 28 percent, making it the biggest gainer among the 10 most actively traded Asian currencies tracked by Bloomberg. Exports, which account for 40 percent of GDP, have grown 19 percent a year on average in the same period.
The won fell 0.4 percent to 907.20 against the dollar at 12:09 p.m. in Seoul.
Kwon yesterday told parliament that the government will continue to buy or sell the currency to curb speculation.
Currency Speculation
``The government is clearly committed to blocking any speculative move'' in the foreign-exchange market, Kwon said at a parliamentary hearing.
Kwon's comments on exporters and the won contrast with those of Kim Dong Jin, Hyundai Motor's vice chairman, who said this week the currency's advance is the ``No. 1 obstacle'' for South Korea's third-biggest exporter.
Kwon and Kim also disagree on the currency's direction. Hyundai's Kim sees further gains. Kwon reiterated his view the currency's advance will cease because demand will fall along with the nation's current account surplus.
``I don't think the currency has reason to appreciate further because the rate is determined by supply and demand,'' Kwon said. He predicts South Korea's current account surplus will drop to zero this year as more Koreans travel and invest overseas, reducing demand for won.
The Bank of Korea estimates the surplus this year will be $2 billion, down from $6 billion in 2006. The government earlier this year relaxed regulations so that individuals can invest more overseas. Some foreign exchange traders said a shrinking current-account gap probably won't be enough to curb the won.
`Wishful Thinking'
``It's wishful thinking to expect a current account deficit to curb the won's gains,'' said Kim Tae Wan, a Seoul-based currency dealer with Kookmin Bank, South Korea's biggest lender. ``New Zealand and Australia have huge deficits but their currencies are rocketing.''
Australia has recorded a current account deficit each quarter since 1973 with the shortfall climbing to a record A$16 billion ($14.6 billion) in the second quarter. The Australian dollar has surged 16 percent this year to a 23-year high. New Zealand's current account gap is 8.2 percent of gross domestic product and its currency has gained 8 percent this year.
Kwon said South Korea's rising demand for electricity gives him confidence to predict a rebound in domestic demand after a slowdown in the second quarter.
Electricity sales climbed 4.2 percent in September, after gaining 6.1 percent in August and 6.6 percent in July, according to Korea Electric Power Corp.
``Electricity demand is still increasing substantially,'' Kwon said. ``That means overall sentiment isn't that bad.''
Kwon said there are still risks to growth, including the U.S. housing recession and record oil prices.
A U.S. slowdown would be mitigated by rising exports to China and India, while the current oil price is ``endurable,'' he said.
The price of crude oil climbed beyond $96 a barrel for the first time yesterday and has surged 57 percent this year. South Korea imports almost all of its oil from abroad.
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