S. Korea Sees Most Growth Since ’10 Even as Won Gains: Economy

South Korea’s growth is poised to accelerate to the fastest since 2010, even as the central bank warned the won’s climb to the highest against the yen in more than five years threatens to damp exporters’ profits.

Momentum in Asia’s fourth-biggest economy is picking up, led by improvement in Seoul, mid and southwest areas of the country, the Bank of Korea said in a quarterly “Golden Book” report released today in Seoul. The yen’s decline against the won is intensifying competition with Japanese companies and may hurt profitability of some exporters, the report said.

South Korean authorities were watching for drastic moves in exchange rates, Finance Minister Hyun Oh Seok said this week when the won hit the highest level against the yen since 2008. A housing-price rebound after the worst property-market slowdown since 2004 could support the economy after government and central bank stimulus this year helped jumpstart a recovery.

“There is currently pent-up demand and conditions are ripe for a cyclical upswing, supported by government measures to increase social welfare spending and boost the property markets,” Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc., wrote in a research note yesterday.

The central bank on Oct. 10 projected 2.8 percent growth this year and 3.8 percent growth next year, the fastest since 2010, when the economy expanded 6.3 percent as it pulled out of a global downturn.

On Track

“The Golden Book shows that so far, our economy is well on the growth track that we projected last month,” Shin Woon, director-general at the BOK, said today by phone.

South Korea’s current account surplus -- which the BOK forecasts will rise to a record $63 billion this year -- has helped support the won, and buffered it against a sell-off in some other emerging-market currencies earlier this year when speculation about the U.S. Federal Reserve tapering picked up.

The won touched 10.41051 per yen on Nov. 25, the strongest since September 2008, and traded at 10.44637 as of 1:50 p.m. in Seoul.

Tapering of U.S. monetary policy, increased volatility in the foreign exchange market and corporate-sector restructuring remain risks to the economy, Hyun said today at a meeting with municipal governors in Busan, according to an e-mailed statement from the ministry.

“With competition with Japanese rivals intensifying due to the weak yen, the won’s gains may hurt price competitiveness and profitability for some exporters” including those in the machinery industry, the BOK report said.

’Herd Behavior’

Samsung Electronics Co. last month posted record third-quarter earnings after extending its lead in the smartphone market and benefiting from a rally in chip prices. Hyundai Motor Co., South Korea’s largest carmaker, reported its first profit increase in four quarters after sales gained in China and demand rose in Brazil.

As the won climbed in recent months, officials used the term “herd behavior” to warn off speculators. Hyun told lawmakers Nov. 1 that authorities would act to counter the won’s strength.

The won is unlikely to rise further next year as South Korea’s current-account surplus may narrow, Kwon Goohoon, a Seoul-based economist at Goldman Sachs Group Inc., said at a briefing in Seoul yesterday.

The South Korean currency could fall to 1,080 per dollar early next year, before reaching 1,100 at end of 2014, Kwon said. The won traded at 1060.33 per dollar at 2:33 p.m. in Seoul today, down 0.1 percent.

Consumer Confidence

The domestic economy has shown resilience, with consumer confidence rising for a third straight month in November to the highest level since Feb. 2011, according to a separate BOK report released yesterday.

“Private consumption during October and November improved slightly, with sales at large retail stores increasing compared to the third quarter,” the BOK said in today’s quarterly report.

Elsewhere in the region, New Zealand reported its trade deficit narrowed in October, while all economists surveyed by Bloomberg predict the Bank of Thailand will keep its benchmark interest rate unchanged for a fourth meeting today.

Data to be published in Europe may show German consumer confidence will rise in December, while the U.K. Office for National Statistics is expected to reiterate the economy grew at its fastest pace in more than three years last quarter.

U.S. durable goods orders fell in October from a month earlier, while initial jobless claims climbed in the week ended Nov. 23, according to Bloomberg surveys ahead of reports today.