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Recovery showing signs of losing steam
Writer : Sender
Jul 30, 2010
Policymakers and some business leaders may feel thrilled about a series of upside economic surprises, such as the stronger-than-expected GDP growth and record sales by local conglomerates, including Samsung Electronics.
There are renewed concerns about Korea's future course, with many leading indicators suggesting that the economy and business activities will lose growth momentum in the latter half of this year.
Although the central bank said that the economy may have entered an expansion phase, chances are growing that it will derail from the recovery track due to lingering uncertainties, such as an economic slowdown in the U.S. and China, and the sluggish real estate market here.
More businesses have turned pessimistic about the economic outlook, with the manufacturers' business confidence falling in July for the first time in seven months due to the key rate hike and lingering woes abroad.
The Bank of Korea (BOK) reported Thursday that the manufacturers' business survey index stood at 103 for July, down from 105 for June, the first decline since last December. The index measures manufacturers outlook on business conditions for the coming month.
A separate survey by the Federation of Korean Industries showed a similar result. The portion of large local firms with upbeat outlooks fell for the third straight month. The monthly business survey index (BSI) for August came in at 100.7, compared with 107.3 for July. The FKI computes the BSI based on its monthly survey of the countrys 600 largest businesses.
"The business sentiment of our firms is worsening since the central banks recent key rate increase prompted concerns of an exit strategy by the government from its economic stimulus programs," the FKI said in a press release. The BOK raised the key rate to 2.25 percent from a record low of 2 percent in July, the first increase in 17 months.
The survey showed most businesses expect their sales at home to shrink as the BSI for domestic consumption dropped from 105 to 100.
The OECD also forecast that the Korean economy will see a slowdown in the second half of this year. In its latest report on the Composite Leading Index (CLI) for Korea, a measure of the likely movement of the economy in the near future, fell 0.4 points to 103.4 to post a drop for six months.
Among OECD members, Korea showed the biggest fall in the month-on-month index change following Hungary (-0.9 points) and France (-0.5 points).
Some analysts dismissed the concern over a double dip, forecasting that Korea will sustain its economic growth down the road.
"If a double dip happens, Korea will be negatively affected along with everyone else, but it is likely to be affected less, as its exports sell better in a downturn with competitive pricing, while its domestic economy should not go through any major correction, as there is no bubble in Korea," Morgan Stanley senior economist Sharon Lam wrote in a research note.
"The Korean economy in this cycle is quite different than in the past. This recovery is driven by strong corporate earnings due to industry innovation (R&D) and accurate market strategy, such as early sales penetration into emerging markets," she added.
(Source: The Korea Times)
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