Wall Street Journal - August 20, 1999
SOUTH KOREA'S GDP SURGED BY 9.8% IN THE 2ND QUARTER
By Michael Schuman Staff Reporter Of The Wall Street Journal
SEOUL, South Korea -- The recovery of the South Korean economy is picking up speed, and economists expect the good news to continue.
Gross domestic product grew a higher-than-expected 9.8% in the second quarter of 1999 from the year-earlier quarter, when the economy shrank 7.2%, the Bank of Korea said. In the first half, the economy grew 7.3%, compared with a 5.5% contraction in the first half of 1998.
The economy is recovering sharply from the worst recession in Korea's modern history. In late 1997, Korea, with its currency plunging and reserves dwindling, received a $58 billion International Monetary Fund-led bailout, and last year the economy shrank 5.8%. But so swift is the revival that GDP in the first half of 1999, measured in won, was actually greater than in the same period in 1997, before the economic crisis.
The recovery also appears to be gaining depth. At its heart is the Korean consumer. Private consumption surged 9% in the second quarter. Investment in facilities also returned to strong growth, up 37% in the second quarter. Earlier this year, policy makers had said that higher investment was needed to sustain economic growth. The economy was also helped by 16% export growth. "Everything looks to be firing on all cylinders," said Graham Courtney, executive director at Warburg Dillon Read in Tokyo.
The reason the economy is growing so quickly is that consumer confidence has returned more rapidly than even the optimists expected. It was helped by lower interest rates, which boosted the stock market and made people feel wealthier. The benchmark three-year corporate-bond yield is 9.96%, and although that is the highest level this year, it is still far lower than the 31% reached at the height of Korea's financial crisis in 1997. The lower rates have also encouraged companies to start investing again.
Daewoo Still Creates Fear of Upsetting Seoul Market
Economists don't expect the financial woes of the Daewoo Group to significantly slow the economy. On Monday, Daewoo's creditors agreed on a restructuring plan that would dismantle the cash-strapped group. There is a chance that the jitters Daewoo's problems have caused in the financial sector could continue to raise interest rates, depress the stock market and thereby hurt consumer confidence, but economists so far don't see the effect being that severe. "The growth rate is going to be maintained," said Franklin Poon, an economist at ABN Amro Asia in Hong Kong. Mr. Poon is increasing his growth estimate for all of 1999 to 8% from 6%.
Next year, however, growth may slow somewhat, mainly because the economy won't be rebounding off a very low base as in 1999. Mr. Poon forecasts growth in 2000 at 5.7%.
Asian Economic Indicators
Growth Inflation Prime Rate Australia 4.80 1Q 1.2 1Q 8.50 Hong Kong 3.40 1Q -4.0 May 8.25 India 5.80 FY 3.7 May 12.00 Indonesia 1.82 2Q -0.3 June 33.50 Japan 2.00 1Q -0.6 May 1.90 Malaysia -1.30 1Q 2.9 May 7.24 New Zealand -0.30 4Q -0.1 1Q 6.50 Philippines -1.20 1Q 6.7 May 9.07 Singapore 1.20 1Q -0.3 April 5.38 South Korea 9.80 2Q 0.8 May 9.50 Taiwan 4.33 1Q -0.8 July 7.84 Thailand -7.00 1998 -0.5 May 8.75 (minimum)
Growth is year-on-year % change Inflation is CPI index, year-on-year % change; India reports WPI Prime rate is % on average, unless otherwise noted