South Korea’s Economic Growth Weakens as Exports Sink on Europe: Economy

South Korea’s economy grew the least in two years in the fourth quarter as exports sank because of Europe’s sovereign debt crisis and a faltering global expansion.

Gross domestic product expanded 0.4 percent from the third quarter, when it gained 0.8 percent, the central bank said in Seoul today. That was less than the median 0.5 percent estimate of 10 economists surveyed by Bloomberg News. From a year earlier, growth was 3.4 percent.

A U.S. Federal Reserve pledge yesterday to keep interest rates low through at least late 2014 and a report showing a contraction in the U.K. economy highlighted the global weakness that has triggered monetary easing in Asia. South Korea’s economy is likely to shrink this quarter and the central bank may cut borrowing costs in April and July, Nomura Holdings Inc. says.

“There won’t be much choice for the Bank of Korea other than to cut rates” if the export slump worsens and first- quarter economic growth deteriorates, said Park Sang Hyun chief economist at Seoul-based HI Investment & Securities Co.

On Jan. 24, India’s central bank unexpectedly cut the amount of deposits lenders need to set aside as reserves for the first time since 2009. Thailand reduced interest rates yesterday. Indonesia will boost government spending to offset a slowdown in exports and investment, Bambang Brodjonegoro, the head of fiscal policy at the nation’s finance ministry, said in an interview yesterday.

Fed’s Support

Asian stocks rose today on the Fed’s plans to support U.S. growth, with the MSCI Asia Pacific Index advancing 0.6 percent as of 10:57 a.m. in Tokyo.

Across the Asia Pacific region, New Zealand kept interest rates on hold today, Singapore will report industrial output and Hong Kong is due to release trade data for December. Japan said its public debt will probably rise to a record 1,085.5 trillion yen ($14 trillion) in the year ending March 2013.

In Europe today, a report may show unemployment rates rising in Scandinavia. Sweden’s jobless rate is estimated to increase to 7 percent in December from 6.7 percent a month earlier, while Denmark’s rate may advance to 6.3 percent from 6.2 percent, according to the median forecasts in surveys of economists.

Other European figures may show German and French consumer confidence steadying, while Italian household sentiment may have risen this month. The U.K. yesterday reported a 0.2 percent economic contraction in the fourth quarter from the third.

U.S. Jobless Claims

In the U.S., a Commerce Department report may show orders for durable goods rose 2 percent in December, a third straight monthly advance, according to a survey of economists. At the U.S. Labor Department, data may show initial claims for jobless benefits in the week ended Jan. 21 gained to 370,000 from 352,000. Those reports may be followed by figures showing improvement in new home sales and a leading economic index, according to economists.

In South Korea, exports fell in the final three months of 2011 for the first time in two years and investment and consumption also declined, today’s report showed.

Overseas shipments dropped 1.5 percent from the third quarter, when they gained 2.2 percent, today’s report showed. Corporate investment in facilities fell 5.2 percent from the previous quarter, when it slid 0.8 percent, while private consumption decreased 0.4 percent after advancing 0.4 percent.

‘Tepid’ Demand

South Korea’s economy may contract 0.1 percent in the three months ending March from the previous quarter because of weaker exports and “tepid” domestic demand, according to Kwon Young Sun, a Hong Kong-based economist at Nomura. Besides rate cuts, politicians may combat the slump with a 12 trillion won ($10.7 billion) supplementary budget, equivalent to 1 percent of GDP, he said.

South Korea’s inflation has remained elevated in part because a weakening won has made imported goods more expensive. Consumer prices rose 4.2 percent from a year earlier in November and December, exceeding the central bank’s target limit of 4 percent.

Risks to South Korea’s economy are increasing and inflation may ease at a moderate pace as growth slows for some time before picking up, the central bank said on Jan. 13, deciding by a unanimous vote to keep the main benchmark interest rate unchanged for a seventh month. South Korea may enter a normal recovery path in the second half of the year, Governor Kim Choong Soo said that day.

The BOK forecast in December that the economy will grow 3.7 percent in 2012 and 4.2 percent in 2013. The economy expanded 3.6 percent in 2011, today’s report showed. Consumer prices may increase 3.3 percent this year after a 4 percent gain in 2011, according to the projections.

To contact the reporters on this story: Seonjin Cha in Seoul at scha2@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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