By Kim Jae-kyoung
Staff Reporter
South Korea is seeing a dim light at the end of the tunnel as its economy has delivered an upside surprise with economic data ― including industrial output and business sentiment ― showing signs of bottoming-out.
Economists and investors are cautiously optimistic, claiming that the worst is over and Asia's fourth-largest economy will rebound in the second quarter of the year at the earliest.
``Leading composite indicators improved on a sequential and annual basis, pointing to a possible recovery in Korea and elsewhere in the region over the coming six months,'' HSBC senior Asia economist Frederic Neumann said.
``Korean industrial activity, as well as the leading index, tend to have a leading quality so that this may be taken as a sign that economic growth is stabilizing across the region more generally. It's a tentative sign that after a long and dark winter, spring is around the corner,'' he added.
According to the Bank of Korea (BOK) and the National Statistical Office (NSO), industrial production only fell 10.3 percent in February year-on-year, a turnaround from the 25 percent collapse in January.
On a month-on-month basis, industrial production rose for a second month, jumping 6.8 percent in February, following a 1.6-percent advance in January. In particular, leading composite indicators rose 0.5 percent month-on-month in February, the first increase since December 2007.
According to the Federation of Korean Industries (FKI), business sentiment also improved further in March, with headline outlook and current economic condition indices up sharply thanks to the continued healing process in credit markets, and the stabilization of investors' concern over Korea's external debt insolvency.
Citing an improvement in leading composite indicators, JP Morgan economist Lim Ji-won said, ``Korea's industrial production appears to be bottoming in the current quarter, while inventory condition keeps improving.''
``Against this backdrop, we maintain the view that real GDP could rebound in the second quarter on a quarter-on-quarter basis, after slowing the pace of contraction significantly in the current quarter,'' she added.
Together with stabilizing trends in industrial production, as well as an uptick in business sentiment, the latest export data provides tentative indications of a bottoming out of the economic downturn.
The nation's trade surplus reached a record high of $4.6 billion in March, the largest monthly surplus since the $3.8 billion of April 1998. Export volume grew $2.9 billion last month from a month ago, while imports only gained $1.2 billion.
However, policymakers and experts caution against hasty optimism, citing distortions in economic data and lingering uncertainties over the global economy.
Excluding the Lunar New Year effect, for which the year-on-year number does not adjust, industrial production still fell 15.5 percent in February from a year ago, which is not quite an impressive improvement.
In addition, output was evidently boosted by a huge jump in vessel production. Car and semiconductor output still fell 19 percent and 16 percent year-on-year.
``Upon closer inspection, there are a lot of distortions in the data, which suggests that the pick-up in activity hasn't been quite as vigorous as the numbers suggest,'' Neumann said.
In its monthly economic report, the Ministry of Strategy and Finance said that although the economy is still in a slump, recent indicators show that economic trends are improving slightly.
But the report stressed that it was too early to talk about optimism as negative and positive factors currently coexist, with lingering uncertainties about external conditions.
``I think that we may be near the bottom. But the issue is how long the economy will be there,'' BOK Deputy Governor Kim Byung-hwa said.
``The future course of the economic recovery will depend on how fast the global economy, particularly the U.S. economy, will get back on track,'' he added.
kjk@koreatimes.co.kr
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