Korea's economy steams ahead
Fourth-quarter data lift investor spirits,
spark talk of rate rise
By JIN-YOUNG YOOK
DOW JONES NEWSWIRES
January 26, 2006
SEOUL -- The central bank said South Korea's economy in the fourth quarter grew a seasonally adjusted 1.7% from the third quarter, as most sectors reported strong growth.
The Bank of Korea also raised its 2005 growth estimate to 4%, adding to expectations of further interest-rate increases in the near term.
The won soared to new multiyear highs against the dollar and yen yesterday despite warnings from authorities that aggressive action was being considered, as investors stormed back into the stock market on optimism about the country's economic prospects. Government bonds also rallied.
The 1.7% growth in the October-December quarter followed 1.9% growth in the July-September quarter. Fourth-quarter growth from the year-earlier period was 5.2%, faster than the third quarter's 4.5% year-to-year pace.
Although the 4% growth estimate for 2005 gross domestic product was lower than 2004's 4.6%, the 2005 estimate was still above the central bank's early-December forecast for 3.9% growth for the year.
"The GDP data was widely expected to be good, but the capital-investment sector came far above expectations, so it's a surprise for the market. And this should be reflected in upcoming monetary policy," said Lee Jong Myung, a fixed-income analyst at Hanwha Securities.
But "even more encouraging than the headline GDP acceleration is greater evidence that domestic demand is increasingly taking the lead in driving overall growth," Goldman Sachs said.
Capital investment rose 5.1% last year, exceeding the central bank's previous estimate of 3.9% growth and 2004's 3.8% increase. Fourth-quarter capital expenditure was 5.9% higher, a 1.3% decline for the previous three months.
Private spending grew 3.2% in 2005. That was higher than the bank's December forecast of 3%. In the preceding year, private consumption contracted 0.5%.
As indicators of domestic consumption showed stronger growth, their contribution to GDP expanded, making up for the 9.7% growth in exports last year, which was slower than 2004's 21% surge.
Economists and traders said they expected the Bank of Korea to tighten monetary policy sooner rather than later but were divided over whether the central bank could raise its policy call rate as soon as its Feb. 9 meeting.
Go You Sun, an economist at Daewoo Securities, expects a rate increase in March or the second quarter, saying that stock-market volatility and appreciation of the won will prompt the central bank to wait for more economic data before deciding on any policy move.
December industrial output, due Friday, is expected to have risen 12.3% from a year earlier and to have fallen 0.4% seasonally adjusted month to month, according to a recent Dow Jones Newswires poll, while January trade numbers are due Wednesday.
Cho Joong Jae, a fixed-income analyst at Goodmorning Shinhan Securities, said: "The bond market is now equally divided on how the BOK decides next month; if the Kospi recovers and the dollar-won rate rises, there may be a rate hike."
The dollar closed at 968.90 won, its lowest level since Nov. 4, 1997. The Korea Composite Stock Price Index rose 1.2% to 1342.59. |
