Korea: Economy grows at fastest pace in three years
January 23, 2014
In the fourth quarter, GDP expanded 3.9% over the same period of the previous year. The expansion overshot the 3.3% increase observed in the third quarter and was in line with market expectations. The reading represents the fastest expansion since Q1 2011. A quarter-on-quarter comparison, however, showed that GDP expanded a seasonally-adjusted 0.9% in Q4, which came in below the 1.1% registered in Q3.
Q4's expansion was propelled by faster growth in domestic demand and an improvement in the external sector. Domestic demand increased 3.8% annually in Q4 (Q3: +3.3% year-on-year) due to mildly growth in private consumption (Q4: +2.2% yoy; Q3: +2.1% yoy) and stronger public spending (Q4: +3.7% yoy; Q3: +3.1% yoy). In addition, gross fixed investment surged 8.8% in Q4 over the same quarter of the previous year, which was well above the 5.9% expansion observed in Q3.
The external sector improved in Q4 on a 5.5% expansion in exports of goods and services (Q3: +2.4% yoy) and a 5.2% increase in imports (Q3: +2.3% yoy). Consequently, the external sector's net contribution to overall economic growth rose from 0.3 percentage points in Q3 to 0.7 percentage points in Q4.
In the full year 2013, the Korean economy grew 2.8%, which came in above the 2.0% increase registered in 2012. Against this backdrop, the Bank of Korea expects the economy to gain momentum in 2014 and expand 3.8%. For 2015, the Bank expects the economy to expand 4.0%.
FocusEconomics Consensus Forecast panelists see the economy growing 3.5% in 2014, which is unchanged from last month's estimate. For 2015, the panel projects the economy to expand 3.7%.
Author: Ricardo Aceves, Senior Economist