S Korea Thinly Avoids Recession in Q1; Mar Chems Exports Up
SINGAPORE (ICIS news)--The South Korean economy managed to avoid a technical recession so far but the outlook remains gloomy with the continued deterioration in the global economic picture, analysts said on Friday.
Although the country’s GDP barely expanded in the first three months of 2009 with growth of 0.1% from the fourth quarter, it was a strong improvement from the 5.1% quarter-on-quarter slide registered in the December quarter when external demand ebbed and domestic economic activities stagnated, advanced estimates from the Bank of Korea showed.
A technical recession is defined as two consecutive quarters of decline in economic output.
Three of the five major economic sectors of the country went back into growth modes in the March quarter, most notable of which is the construction sector that registered a 6.1% quarterly growth. Manufacturing declined 3.2% from the fourth quarter due to the slump in exports.
As South Korea’s major industrialized trading partners like the US, Japan and Europe sink deeper into recession, the country’s prospects would remain dim despite some pick up in the domestic economy, analysts said.
“It is a bit early to talk about recovery. So far, the signs are pretty fragile,” said Simon Wong, Hong Kong-based regional economist at Standard Chartered Bank.
Trade flows in the Asian region have started to stabilize towards March but double-digit declines continued to be registered on an annual basis, he said.
“I don’t think global demand has shown clear signs of picking up yet,” Wong said, adding that the second quarter will be challenging for South Korea.
The country’s exports of petrochemical products such as polyvinyl chloride (PVC) and low density polyethylene (LDPE) grew in March from a year earlier but this was partly because producers sought alternative markets for the output that the South Korean economy could not absorb, according to market sources.
PVC shipments jumped 53% year-on-year to 45,009 tonnes while LDPE exports more than doubled to 34,849 tonnes last month, according to data from the Korea International Trade Association.
A South Korean PVC producer said he expected shipments in the next two months to turn 20% lower than March levels given some improvement in domestic construction activities.
For the three-month to March period, construction grew 0.6% year-on-year, reversing the 2.4% annual decline in the fourth quarter.
South Korea has eschewed the recession wagon carting off most of the world economies for now as the fiscal measures the government had undertaken last year started to take effect, analysts said.
Based on data from the Ministry of Strategy and Finance, the South Korean government had spent a total of Korean Won (W)83,700bn ($62.6bn), or 32% of its 2009 budget in the first three months of the year.
The easing of the credit crunch in South Korea was “a short-term relief” that also made the minimal quarterly economic growth possible in the three months to March, said Standard and Chartered’s Wong.
But the economy is far from out of the rut yet, analysts said.
On an annual basis, it shrank a deeper 4.3% in the January-to-March period from the 3.4% fall recorded in the fourth quarter, according to government data.
It remains certain South Korean economy will contract for the first time in 2009 after more than a decade of consistent expansion.
“At the end of the day, we are still talking about pretty weak domestic demand. It’s the underlying demand that matters,” said Standard Chartered’s Wong.
Signs of stability in China, which has grown in importance as South Korea’s export market over the years, are a strong positive, said Daniel Soh, Singapore-based economist at consultancy firm Forecast.
The weak South Korean currency – the won has at least helped the country’s goods make further inroads into the mainland, which continues to have healthy import requirements due to the size of its economy, analysts said.
In March, China took in 30% of South Korea’s LDPE exports and absorbed 62% of the country’s 18,517 tonnes butadiene shipments.
South Korea had also sold 41% of its 98,974 tonnes toluene exports to Asia’s biggest developing economy, based on KITA statistics.
Soh said China has about 15% share in South Korea’s overall exports as of March.
“Stabilizing imports from Chinese companies will offset downside risks from industrialized countries like EU and Japan,” he said.
Although the country’s GDP barely expanded in the first three months of 2009 with growth of 0.1% from the fourth quarter, it was a strong improvement from the 5.1% quarter-on-quarter slide registered in the December quarter when external demand ebbed and domestic economic activities stagnated, advanced estimates from the Bank of Korea showed.
A technical recession is defined as two consecutive quarters of decline in economic output.
Three of the five major economic sectors of the country went back into growth modes in the March quarter, most notable of which is the construction sector that registered a 6.1% quarterly growth. Manufacturing declined 3.2% from the fourth quarter due to the slump in exports.
As South Korea’s major industrialized trading partners like the US, Japan and Europe sink deeper into recession, the country’s prospects would remain dim despite some pick up in the domestic economy, analysts said.
“It is a bit early to talk about recovery. So far, the signs are pretty fragile,” said Simon Wong, Hong Kong-based regional economist at Standard Chartered Bank.
Trade flows in the Asian region have started to stabilize towards March but double-digit declines continued to be registered on an annual basis, he said.
“I don’t think global demand has shown clear signs of picking up yet,” Wong said, adding that the second quarter will be challenging for South Korea.
The country’s exports of petrochemical products such as polyvinyl chloride (PVC) and low density polyethylene (LDPE) grew in March from a year earlier but this was partly because producers sought alternative markets for the output that the South Korean economy could not absorb, according to market sources.
PVC shipments jumped 53% year-on-year to 45,009 tonnes while LDPE exports more than doubled to 34,849 tonnes last month, according to data from the Korea International Trade Association.
A South Korean PVC producer said he expected shipments in the next two months to turn 20% lower than March levels given some improvement in domestic construction activities.
For the three-month to March period, construction grew 0.6% year-on-year, reversing the 2.4% annual decline in the fourth quarter.
South Korea has eschewed the recession wagon carting off most of the world economies for now as the fiscal measures the government had undertaken last year started to take effect, analysts said.
Based on data from the Ministry of Strategy and Finance, the South Korean government had spent a total of Korean Won (W)83,700bn ($62.6bn), or 32% of its 2009 budget in the first three months of the year.
The easing of the credit crunch in South Korea was “a short-term relief” that also made the minimal quarterly economic growth possible in the three months to March, said Standard and Chartered’s Wong.
But the economy is far from out of the rut yet, analysts said.
On an annual basis, it shrank a deeper 4.3% in the January-to-March period from the 3.4% fall recorded in the fourth quarter, according to government data.
It remains certain South Korean economy will contract for the first time in 2009 after more than a decade of consistent expansion.
“At the end of the day, we are still talking about pretty weak domestic demand. It’s the underlying demand that matters,” said Standard Chartered’s Wong.
Signs of stability in China, which has grown in importance as South Korea’s export market over the years, are a strong positive, said Daniel Soh, Singapore-based economist at consultancy firm Forecast.
The weak South Korean currency – the won has at least helped the country’s goods make further inroads into the mainland, which continues to have healthy import requirements due to the size of its economy, analysts said.
In March, China took in 30% of South Korea’s LDPE exports and absorbed 62% of the country’s 18,517 tonnes butadiene shipments.
South Korea had also sold 41% of its 98,974 tonnes toluene exports to Asia’s biggest developing economy, based on KITA statistics.
Soh said China has about 15% share in South Korea’s overall exports as of March.
“Stabilizing imports from Chinese companies will offset downside risks from industrialized countries like EU and Japan,” he said.
quoted from: www.ICIS.com
