Economic Data Signal Mixed Directions
Credit Market Improving but Labor Market Worsening
By Kim Jae-kyoung
Staff Reporter
Korean policymakers may be scratching their heads at the latest developments on the economic and financial fronts, with monthly data sending mixed signals about the economy.
Some data, such as that on high-tech exports and the credit market, show signs of an uptick, while others, such as consumer confidence and the labor market, indicate that the economy has yet to bottom out.
``With some data showing signs of subtle improvement, people have become more optimistic about the economy,'' Bank of Korea (BOK) Deputy Governor Yun Han-keun told The Korea Times.
``It's true that economic activities and financial markets are picking up slightly, but it is too early to talk about a recovery because uncertainties are still lingering due to the deepening U.S. economic slump and sluggish job market here,'' he added
According to the National Statistical Office (NSO) and the BOK, year-on-year growth of high-tech exports, which had fallen 40.9 percent in December year-on-year, improved to a fall of just 29.6 percent in January compared to the same month last year. High-tech sector production jumped 21.8 percent month-on-month in January.
In particular, Korea' s China-bound tech exports jumped from $1.6 billion in December to $2.4 billion in February, while overall tech exports rose from $6.8 billion to $8.1 billion during the same period.
There are also signs of a rebound in domestic demand, particularly from construction activity, which grew 1.8 percent in January year-on-year, a major turnaround from an 8.7 percent contraction in December.
Credit market conditions have also improved, with bank loans maintaining double-digit growth, and the spreads on bank debentures and high grade corporate bonds tightening significantly, leading a recovery in the stock and currency market.
``We have become more confident that the fall in growth momentum is bottoming out, as indicators such as high-tech exports and construction activities are showing signs of a rebound,'' Citigroup economist Oh Suk-tae said.
``Now we are watching whether a similar rebound in exports and production will happen in the auto sector,'' he added.
However, there are also negative signs dampening hopes of an economic recovery.
According to a BOK survey in March, consumer sentiment turned downward for the first time in three months, with the consumer survey index (CSI) falling to 84 from the previous month's 85. A reading below 100 means that pessimists outnumber optimists.
The central bank said that despite a series of stimulus measures, consumers remain pessimistic about the recovery due to stagnant job markets and rising inflation.
The nation's jobless rate jumped to a four-year high of 3.9 percent in February and the country saw 142,000 jobs eliminated, the largest reduction since September 2003.
``It's really far too early to call it a bottom. Monthly indicators are volatile and difficult to interpret. This is particularly the case at the turn of the year,'' said Standard & Poor's Kim Eng Tan, who is in charge of Korea's sovereign rating.
``What's more certain is that the kind of sudden and steep decline we saw in the fourth quarter of 2008 is unlikely to recur,'' Tan said. ``What shape the economic recovery will take depends heavily on the success of policy actions in the U.S.''
Mixed signals are likely to make it more difficult for the BOK to make a decision on rate cuts in April. The central bank left its key rate untouched at the current level of 2 percent in March to curb rising inflationary pressure and save ammunition for the future.
``The BOK has become more cautious on further easing, and a zero interest rate policy or quantitative easing is not likely,'' Oh said.
In the meantime, the long chill in the U.S. economy might be thawing, with its housing sector showing signs of stability. U.S. existing-home sales rose 5.1 percent in February, the largest monthly gain in five years, according to the National Association of Realtors.
During a prime-time news conference Monday, U.S. President Barack Obama said that he sees signs of economic recovery. ``My administration has put in place a comprehensive strategy designed to attack this crisis on all fronts. And we are beginning to see signs of progress,'' he said.