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Goldman expects 3.4% growth for Korea in 2013

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Published : 2012-12-05 20:00
Updated : 2012-12-05 20:00

Goldman Sachs projected that the Korean economy will grow by 3.4 percent next year as exports pick up on global recovery and low oil prices support consumption.

The investment bank’s outlook for the KOSPI in 2013 is between 2,000 and 2,450 points (2,300 as baseline), with electronics, autos, steel and banks among the highest-performing sectors.

The nation’s construction sector will also show a mild recovery after three years of contraction and the Korean won will gradually appreciate after weakness in early 2013, said Kwon Goo-hoon, chief Korea economist at Goldman Sachs.

“Inflation in Korea will remain low, below 3 percent, and the country’s policy rate will stay on hold in 2013,” Kwon told reporters on Wednesday.

“Advanced economies such as the U.S., Japan and the euro area are expected to keep their policy rates unchanged through the end of 2014, providing ample global liquidity.”

While the economy in Europe will continue to stagnate despite lower tail risks such as the collapse of the eurozone or sovereign defaults, China is likely to see a sustained robust growth of 8 percent and structural reforms, according to Kwon.

“China will announce in November next year the reform plans such as for state-owned enterprises including banks, and liberalization of interest rates and the capital market, which will proceed for five years,” he said.

“Korea’s GDP growth, which depends highly on exports, has usually moved in line with the global economic growth. Korean exports will co-move with exports of other Asian countries as intra-Asian trade is growing rapidly.”

The investment bank views that large household debts in Korea, despite being one of the key risks for the country, are manageable and will stabilize. Rather than just looking at the household debt-to-income ratio, one should also take note of the household net worth (assets minus liabilities)-to-income ratio, which is about 7 to 1 in Korea, Kwon said. An average Korean who earns 100 million won per year, for instance, owns 700 million won in net worth, which is comparable to developed markets.

The macroeconomist also said that what affected domestic consumption the most in Korea is not household debts, but uncertainties in the eurozone.

Citing some internal tests and a “EU Policy Uncertainties Index” created by Stanford University, he pointed to how Korea’s retail sales fluctuated in line with the EU policy uncertainties index since 2008.

He suggested that the negative consumption spillover from uncertainties on European policy applied to countries with a strong stock market presence and high dependence on exports.

Despite many similarities in terms of demographics and industrial structure, Korea will not follow Japan into chronic low-growth, because compared to the world’s second-largest economy in the late 1980s, Korea is small enough to continue growing through exports.

Also, Korea is not rich in sovereign wealth, or natural resources plus net international investment positions (Koreans’ overseas financial assets minus foreigners’ financial assets within Korea), Kwon said.

Goldman Sachs forecast that the Korean won will climb about 5 percent against the U.S. dollar next year.

By Kim So-hyun (

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