Mixed Signals Increase Economic Uncertainty
By Lee Hyo-sik
Staff Reporter
A cloud of uncertainty is increasingly overshadowing Asia's fourth largest economy, with a host of economic indices showing mixed signals on its outlook.
Industrial output has been expanding at a faster pace over the past few months, with the nation's large manufacturers turning more bullish on growing overseas demand for Korea-made products. Regional economies are also showing signs of a rebound.
But a myriad of other data indicate that the economy is losing growth momentum. Korea's external balance of payments is deteriorating on falling exports, while the job market continues to remain in a deep slump.
On top of the worsening debt crisis engulfing Greece and other southern European economies, a series of liquidity-absorbing steps taken by G-2 ― the United States and China ― has sent the local stock market into a plunge, with the Korean won sharply losing value against the dollar and other major currencies.
Most analysts here say that the global economic outlook will likely become more uncertain, adding Korea should continue to remain vigilant and maintain an expansionary mode to facilitate the still-fragile recovery.
According to Statistics Korea, industrial output in December expanded at its fastest pace in more than 10 years on strong production of semiconductors and automobiles. Output surged 33.9 percent from a year earlier, the largest expansion since July 1999 when production rose 35.5 percent.
Additionally, manufacturers' business confidence in February rose to its highest level in more than seven years, the Bank of Korea (BOK) said Friday.
The business sentiment index increased to 94 from 93 the previous month, the highest since December 2002.
The central bank also said Friday that regional economies are showing increasing signs of picking up, bolstered by rising consumer spending and corporate investment.
However, another set of economic indicators are pointing in an opposite direction in line with growing downside risks.
Consumer confidence fell to a seven-month low in February as the euro zone debt and the worsening job market conditions weakened households' expectations for a sustained rebound. The BOK said Wednesday that the consumer sentiment index, which measures the overall economic outlook, current living conditions and future spending, dropped to 111 for this month from 113 in January.
Additionally, the nation's trade balance went into the red in January for the first time in 12 months.
According to the Korea Customs Service, the trade account posted a $460 million deficit last month, compared with a $3.1 billion surplus in December 2009.
Korea's job market also continues to remain slow, with the unemployment rate surging to 4.8 percent in January from 3.6 percent the previous month. The number of jobless also reached 1.21 million, the largest since February 2000 when 1.22 million Koreans were unemployed.
Most analysts here say Korea has a long way to go until it achieves genuine and sustained growth, stressing the government should keep a range of expansionary policies intact.
``I think it is too early for Korea to withdraw extraordinary fiscal and monetary policy steps against a host of downside risks, including Greece's debt woes and China's liquidity-tightening steps and the prolonged sluggish U.S. economy,'' Samsung Economic Research Institute chief economist Kwon Soon-woo said.
He said despite the worsening fiscal position, the government should put in place a range of economy-boosting steps to facilitate the ongoing recovery, adding the central bank needs to leave its key policy rate untouched at a record-low level of 2 percent for the time being.