By Yoon Ja-young
The economy is showing positive signs for growth and analysts have cautiously forecast a recovery in the second half, although at a slow pace.
According to the Organization for Economic Cooperation and Development (OECD), Korea’s composite leading indicator (CLI) recorded 102 in March, the highest since April 2010.
The indicator is designed to anticipate turning points in economic activity and a reading above 100 indicates economic expansion.
Korea’s CLI has been rising for nine consecutive months, adding to expectations that the nation is likely to see a stronger recovery in the second half of the year.
The government and the central bank are now giving a more positive outlook on the economy. Bank of Korea Governor Lee Ju-yeol said recently that the economy is showing “weak but positive signs.”
“Consumer sentiment is improving and so are the housing and stock markets. GDP grew 0.8 percent in the first quarter, which is not satisfying enough but continues the improving trend.”
The Ministry of Strategy and Finance also pointed out that the economy is showing signs of improvement, citing indicators such as production, consumption and construction. Housing transactions increased in April, as did sales at retailers and car showrooms. Credit card spending jumped over 15 percent in April, adding to the positive signs.
“Low oil prices and the recovery of the asset market are slowly leading to an improvement in consumption and investor sentiment, adding to the positive signs of an economic recovery,” the ministry said in its recently published economic trend pamphlet.
With the recent pickup of consumption-related indicators, the Korea Institute of Finance delayed the announcement of its economic growth outlook to next month from the previously scheduled May 13. It explained that it wants to confirm the April indicators, which come in late May, to determine whether the economy is recovering.
Yoon Young-kyo, an economist at IBK Investment and Securities, pointed out there are positive indicators. “The consumption of durable goods is clearly increasing, and construction investment in the first quarter jumped 7.5 percent from the previous quarter, the steepest rise since 2001.”
However, he said the rise may be due to too bad indicators during the past few years. “I agree that the first quarter was the bottom and the economy will recover, but this may be led by government spending,” he said, adding that it would still take some time until there is a definite recovery.
So Jae-yong, an economist at Hana Daetoo Securities, expects greater economic recovery in the latter half of the year. “Though it won’t be as strong as in the past, the economy will pick up in the latter half of the year, growing by an annual 3.1 percent,” So said.
“The central bank will maintain its low key rate, sustaining the lower end of the economy,” he said. He added that the economy will have to resort more to domestic consumption than exports which are being weighed on by the monetary easing in China and Japan.
The International Monetary Fund (IMF) said Korea has room for further monetary easing. It said Korea can increase fiscal spending to boost the economy as well as strengthening the social safety net, without hurting fiscal sustainability when considering its low state debt ratio.
The IMF, however, lowered the economic growth outlook for Korea to 3.1 percent from its previous estimate of 3.3 percent.