South Korea’s Faltering Economy: Market Participants Call For Stimulus Measures

  on December 07 2012 11:30 PM
Won Notes
Fifty-thousand-won notes are piled up after being counted at a bank in Seoul. Reuters

With South Korea’s economy continuing to falter, market participants have renewed their call for urgent policy easing measures in the coming months to attain a firm growth recovery.

The revised data released by the Bank of Korea (BoK) this week showed that the country’s economic growth slowed to 0.1 percent in the third quarter of this year compared to that in the previous quarter, weighed down by the faltering global economy and the intensifying debt crisis in the euro zone. The economy expanded 0.3 percent in the second quarter while it rose 0.9 percent in the first quarter.

“A strong economic rebound does not look to be on the cards. Both business and consumer confidence are very low. In addition, the Korean won has been one of Asia’s strongest-performing currencies this year, which has prompted concerns over export competitiveness amid sluggish global growth,” Capital Economic said in a note.

There is the worry among the exporters that the Korean won has appreciated against the Japanese yen which could severely affect the business of South Korea’s firms competing with Japan in the global markets for high-tech manufactured goods. Investors are expecting measures from policymakers to limit the pace of the appreciation of the won.

Meanwhile, South Korea's M2 Money Supply grew at a slower rate in September than that in the previous month, indicating that more monetary easing policies were needed to increase the amount of currency in circulation, which in turn could result in reviving the country’s economic growth.  According to the data released last month by the BoK, the country’s M2 Money Supply, which measures the change in the total quantity of domestic currency in circulation and deposited in banks, grew 8.9 percent in September, down from 9.2 percent in August.

South Korea’s current account surplus on a seasonally adjusted basis dropped in September as compared to that in the previous month, indicating that the weakening global demand was affecting the country’s economy.  According to the BoK, the current account surplus, which measures the difference in value between exported and imported goods, services and interest payments during the reported month, fell to $3.09 billion in September from $4.31 billion in August.

Market players sense that the monetary policy should be loosened again sooner rather than later though the BoK has shown a preference for moving slowly. Last month, the BoK announced its decision to keep the policy rate at 2.75 percent. In October, it cut the policy rate by 25 basis points to 2.75 percent.  

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