S.Korea Q3 GDP revised up, boosts rate rise bets

SEOUL Fri Dec 4, 2009 11:01am IST

Labourers work on scaffolds at a construction site in Seoul in this August 2009 file photo.  REUTERS/Jo Yong-Hak

Labourers work on scaffolds at a construction site in Seoul in this August 2009 file photo.

Credit: Reuters/Jo Yong-Hak

Related Topics

SEOUL (Reuters) - South Korea's economy grew more than initially estimated in the third quarter, boosting bets on a rate rise early next year though the government stressed the outlook remained uncertain and economic stimulus was still needed.

The central bank on Friday estimated a seasonally adjusted 3.2 percent growth in July-September, the fastest in 7-½ years and up from the previous 2.9 percent estimate.

Analysts said the central bank was likely to keep rates on hold at its monthly meeting next week because of easing concerns over property prices.

But government bonds fell as the data reassured investors a rate rise was on the cards at one of the following meetings. Front-end treasury futures plunged as much as 0.23 point. They later regained some ground to trade 0.12 point down, while ticks. The benchmark 5-year and 3-year treasury bond yield were up 6 basis points, while shares and the currency showed little reaction.

"Without clear signals from the central bank on rates, debt investors are easily swayed by a bit of data," said Kim Dong-whan, a fixed-income analyst at HI Investment & Securities.

Goh You-sun, an economist at Daewoo Securities, said that despite impressive GDP figures, the central bank was likely to wait for more evidence that the recovery became self-sustained.

"The economy may be able to avert a contraction for the full year of 2009 but this only means a return to the pre-crisis level. The central bank would rather wait for a few more months to help the growth momentum take a firm hold," Goh said.

The central bank data also showed that Asia's fourth-largest economy grew by 0.9 percent in the third quarter from a year earlier, faster than the previous estimate of a 0.6 percent rise.

The rise was driven mostly by inventory adjustments and 'cash-for-clunker' auto support, with fragile domestic and global demand forcing companies to reduce inventories.

The latest data, updated with September industrial and service sector output, is still considered provisional.

(For a graphic on South Korean GDP, click here)

A monthly economic report by the Finance Ministry confirmed the economy was well on a recovery track. Exports to China in November jumped 54.7 percent from a year ago while department store sales increased 6.4 percent.

ACCOMMODATION VOWS

The Finance Ministry, however, called for caution, saying in its Green Book report that the economy still faced bumpy road ahead, with jobs and corporate investment lagging and global financial markets vulnerable to credit risks.

"To keep the economy moving in its current recovery pace, we will keep accommodative policy stance," the ministry said.

The Bank of Korea, has toned down its hawkish stance in recent months as strict loan control measures helped moderate asset price bubbles, prompting investors to scale back their bets on rate hikes within this year.

The central bank, which has held rates at record-low 2.00 percent for nine straight months, next reviews them on Dec. 10.

(Additional reporting by Cheon Jong-woo; Editing by Jonathan Thatcher and Tomasz Janowski)

FILED UNDER:
  • Most Popular
  • Most Shared

Pending Reform

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage