Korea’s GDP Growth: Stable, Sub-par, Vulnerable

Posted October 27, 2011 by CLeahey

[private]

• Third quarter data show Korea’s seasonally adjusted GDP growing at a marginally slower pace.  Expenditure components of GDP display a similar pattern, but the pick up in Construction and Exports (plus some help from government consumption) is suggestive of a stable-growth economy, rather than one descending gradually into a deeper slowdown.

• The picture that emerges from the data can be read through the optimistic lens as a glass-half-full, but should also be viewed as vulnerable against the background of a challenging global outlook.

• From the policy standpoint the data do not reveal such deterioration on the growth side that would force the Bank of Korea to ease policy.  The situation is rather one of mediocre but stable growth, seemingly non-inflationary and perhaps soft enough as to justify in principle a shift of attention in the direction of recession risk.  In this context, it is hard to see the central bank hiking rates again and in fact the odds of a turn towards easier money are marginally increased—given a decelerating annual inflation, likely to drop below 4% in the near-term.

10-27-11–EMG INDICATORS AND INSIGHTS _Korea GDP_[/private]