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Experts cautious on Korea's recovery
Writer : Sender
Nov 06, 2009
Several analysts said yesterday the government was going in the right direction in maintaining the expansionary policy stance, even though the Korean economy showed a robust recovery in the third quarter.
Their comments came as the Ministry of Strategy and Finance said in a report that it was still uncertain whether the recent fast economic recovery will continue and that it will continue aggressive fiscal spending until this year.
"Risks abound that the world economy might dip again and the global recovery trends are not really satisfactory," said Kwon Soon-woo, research fellow at the Samsung Economic Research Institute.
"The Korean economic recovery was mostly supported by the government's help and the private sector is still vulnerable. The government would have to maintain its fiscal support for some time," he said.
Kwon pointed out three major risks from the world economy that can hurt the Asia's export-driven nation's recovery - troubled commercial real estate loans in the United States, rising oil prices and the weak dollar.
Oil price hikes, driven by the weak dollar, pose multiple threats to the local economy because a higher oil price pushes up inflation, which limits the central bank's room to keep the interest rate low, he said.
"Oil price hikes raise the costs for producers and burden domestic demand as well," Kwon said.
Oh Suk-tae, an economist with SC First Bank, said Korea was unlikely to roll back measures that have been prompting the economic activity unless it sees a clear sign of the global recovery.
"I guess policymakers won't have to rush to make measures regarding exit strategies because only a few emerging markets are talking about implementing exit strategies. The majority of the world is very cautious," Oh said.
Even if the Bank of Korea raises the interest rate this year, it will not have a large impact on the market because the possibility of a hike is already reflected in the market, he added.
The Finance Ministry said in its monthly economic assessment report that economic indicators including production, private consumption, investment and exports have improved fast in September, and that the third quarter growth rate of 2.9 percent was higher than expected.
However, the government will try to use up the entire budget allocated for this year because of lingering uncertainties around the global economy, it said.
Deputy Finance Minister Noh Dae-lae reiterated the government's stance, saying it was premature to implement exit strategies.
"Inflation has been stabilized and worries over a possible asset market bubble have abated as well," Noh said in a forum in Seoul.
"An individual country's (drastic) policy response according to its own interest could kill the nascent recovery," he said.
(Source: The Korea Herald)
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