By Kim Jae-kyoung
Staff Reporter
The Korean economy will get a boost this year as two of the nation's largest trading partners ― China and Japan ― show signs of a quick recovery from the global economic crisis.
In particular, China is likely to play out as the biggest savior to the Korean economy. The nation's biggest export market is on course toward a V-shaped recovery on the back of a pickup in industrial output and retail sales.
China's fast rebound is expected to provide a boost for Asia's fourth largest economy, as rising domestic demand there means an increase in Korea's exports.
China's industrial production in July rose 10.8 percent year-on-year, while retail sales grew at an annual pace of 15.2 percent, suggesting that domestic consumption has helped to balance the drop in foreign demand. China's economy grew at a rate of 7.9 percent between April and June, up from 6.1 percent in the first quarter.
``China is staging a V-shaped recovery and Korea stands to benefit from any strong rebound in China as it is China's second largest import source,'' Morgan Stanley Asia senior economist Sharon Lam said.
Morgan Stanley upgraded its China's GDP growth outlook to 9 percent in 2009 and 10 percent in 2010 from 7 and 8 percent, respectively. Morgan Stanley estimate the upgrade will raise Korea's 2009 GDP by 0.5 percentage points. Goldman Sachs also hiked its 2009 growth forecast for China from 8.5 to 9.4 percent.
``Korea's exports to China outgrew its global export increase rate. With China's unprecedented stimulus package and skyrocketing loan growth lifting domestic demand, Korea's exports to China will only surge higher in the coming months,'' she added.
Such an impact was not seen earlier because it takes time for the stimulus measures to make ways through real economic growth. It is expected to show up in Korea's export data anytime soon.
High dependence on China made Korea particularly vulnerable to a Chinese shock following the global credit crisis. But now China's ascent is benefiting Korea most by supporting the nation's export growth.
Mauro F. Guillen, director of the Lauder Institute at the Wharton School of Business, said that it would be very good for Korea if China rebounds quickly, given that it is a very important export market.
``As the Chinese domestic market develops, South Korean exporters will benefit. It seems that China's economy is likely to grow at very high rates, for two reasons. First, the fiscal stimulus was large and has been implemented very quickly,'' he said.
The Chinese government introduced a 4-trillion-yuan ($586 billion) stimulus package by initiating huge infrastructure projects. The stimulus amounts to about 6.5 percent of China's GDP in 2009, with a planned 5.5 percent in 2010. That's three times larger than the U.S. stimulus.
``Second, there are signs that the U.S. economy might be getting out of the recession later this year,'' he added. ``In sum, there is a better than 50-percent chance right now that the Chinese economy will recover following a V-shape.''
According to the Bank of Korea (BOK), China took 23 percent of Korea's total exports in the second quarter compared with 18.8 percent in the fourth quarter of 2004. China accounted for around 10 percent of Korea's GDP in 2008.
``South Korea needs to continue investing in education, R&D and innovation. That will be the only way of remaining relevant, because the Chinese are very quickly improving their technology base,'' Guillen said.
In the meantime, Japan's economy, the world's second largest, expanded 3.7 percent in the second quarter on a strong rebound in exports. That was the first economic growth in five quarters.
In the second quarter, the Korean economy grew 2.3 percent quarter-on-quarter, the fastest pace in more than five years, on the back of a stimulus package and a sharp rebound in exports. It expanded only 0.1 percent in the first quarter.