At the end of last month South Korea’s finance ministry revised upwards its real GDP growth forecast for 2013 to 2.7% from 2.3% three months earlier, while the 2014 growth target was set at 4.0%. Officials believe that the economy will exhibit faster growth in the second half of this year as the government’s fiscal stimulus package starts to kick-in and the modest recovery in global demand will provide a boost to the external sector. In April the government unveiled an extra budget worth Won17.3trn and in May the Bank of Korea trimmed interest rates. It is hoped that the extra government spending and looser monetary conditions will shore up second half economic activity and the ministry now believes 300,000 new jobs will be created as opposed to the original estimate of 250,000. Furthermore, the official inflation projection was downgraded to 1.7% for 2013 from 2.3% earlier. Whether the economy picks up later this year as hoped remains to be seen, but signs of renewed softness in recent leading indicators do not bode well for the growth outlook. May’s industrial production report showed output contracting by 1.4% (y-o-y) and by 0.4% from a month earlier. This followed a moderate rebound in April and marks the fourth time in five months the sector has reported a monthly contraction. On top of this, June’s trade report was just as downbeat. Exports fell for the first time since February, contracting by 0.9% (y-o-y) to US$46.3bn, while imports shrank by 1.8% to US$41.22bn. This resulted in a trade surplus of US$5.52bn.
Despite the upgrade to official GDP forecasts, consensus growth expectations for this year have continued to falter, while inflation forecasts have edged down below the official target.
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