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(News Focus) S. Korea economy likely set to turn around

All News 09:30 April 02, 2017

By Kim Boram

SEJONG, April 2 (Yonhap) -- With a recent upturn in exports and production and a slight rebound in private consumption, hopes for an economic recovery are rising in South Korea despite lingering uncertainties at home and abroad, local experts said Sunday.

Improved economic data show Asia's fourth-largest economy may be entering into a recovery cycle amid eased political risks following the arrest of former president Park Geun-hye and the fixed schedule for the presidential election next month.

South Korea's production in the mining, manufacturing, gas and electricity industries moved up 6.6 percent in February from a year earlier, marking the highest on-year gain since January 2013.

Retail sales turned around to rise 3.2 percent on-month in February, ending three straight months of contraction.

Exports, the country's key economic driver, have been in a clear rebound mode as they advanced for five months in a row to expand 13.7 percent in March on the back of rising global demand for memory chips and flat screens.

The government is also lending support to the upbeat trend in the real economy, having announced it has poured more than 30 percent of its 2017 budget worth 400 trillion won (US$357.6 billion) in the first three months of the year to prop up growth.

(News Focus) S. Korea economy likely set to turn around - 1

An apparent recovery in the world economy is another source of good news for the South Korean economy. Trade accounts for nearly 70 percent of the gross domestic product.

The United States, the country's second-largest trade partner, grew 2.1 percent in the fourth quarter of last year, with the European Union and Japan expected to post a modest recovery in 2017. Rising oil prices also help energy-exporting countries like Russia and Brazil post positive growth this year that can lead to more demand for locally made goods.

"The world economy has been on a low growth cycle since the 2008 global financial crisis. Its about time that it bottoms out," said an official from the finance ministry. "Countries have struggled to reform their economic system. Their years-long efforts are starting to pay off."

But economists remained prudent and cool-headed as massive household debt, a tighter local job market and ongoing corporate restructuring can create a drag on the economy, especially when coupled with external risks such as concerns that the U.S. may become more protectionist in its trade policies.

South Korea's jobless rate rose to a seven-year high of 5 percent in February with the high youth unemployment rate. The sluggish performance of the manufacturing sector, which accounts for one-fifth of the country's total hiring, weighed heavily on the local job market.

The figures will likely worsen later this year as government-led corporate restructuring of the labor-intensive industries such as debt-stricken shipbuilding and steel may bring in massive layoffs.

The country's household debt, which already surpassed 1,300 trillion won, also poses a serious threat to the South Korean economy as the U.S. Federal Reserve turns to a tighter monetary stance.

"Household debt is huge, and this is particularly serious if interest rates are on the rise," said Joo Won, a senior researcher at the Hyundai Research Institute. "People will tighten their belts, dealing a blow to private consumption."

(News Focus) S. Korea economy likely set to turn around - 2

Moreover, the export-oriented South Korean economy has to face the U.S. government's "America first" doctrine that makes it harder for South Korean firms to ship goods to the North American market.

The U.S. Treasury Department may designate South Korea as a currency manipulator in April, along with China and Germany, citing a massive trade surplus with the world's largest economy, reaching $23.25 billion in 2016.

Many here are concerned about possible renegotiations of the Seoul-Washington free trade deal that took effect in 2012.

At the same time, Seoul needs to deal with China's hostile actions against South Korean imports in an apparent retaliation for the decision to deploy the U.S.-led missile system, or THAAD, on its soil.

"We have to check whether the protectionism gains stronger ground in the future, and China takes additional measures (against South Korean goods)," said the ministry official. "It's better than last year. But we have to wait and see to make certain a recovery is actually in progress."


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