Korea GDP recovery to remain busted in 2H12

A mild recovery of an average 3.5% in 2H12 still remains below the 10Y trend growth of 4.1%.

According to Morgan Stanley, 1H12 real GDP is expected to average 2.6%, which means there will be a mild recovery to an average 3.5% in 2H12. However, 3.5% remains below the 10Y trend growth of 4.1%. This is also going to be a much slower recovery than in 2009, when real GDP growth saw a V-shaped rebound from -3.1% in 1H09 to 3.7% in 2H09.\

Morgan Stanley added:

Having said that, Korea has been weathering vulnerable and weak global demand since 2008, without having experienced one recession. This conforms to our long-held view that the Korean economy has become much more defensive than it was.

The two main reasons for the Korean economy to be defensive are, in our view: 1) its export competitiveness, which helps it to gain market share that partly offsets shrinking global demand, and 2) the Korean government’s decisiveness in supporting the economy, as witnessed by the sizeable stimulus package in 2009 as well as the supplementary budget for 2H12 proposed last week. As a result, we forecast unexciting growth, but we do not expect any collapse in its economy despite the tough external environment.

Meanwhile, the Korean economy today is much less vulnerable to external funding issues than it was in 2008. This is because of a solid current account surplus due to rising export market share and falling oil prices. It helps to rebuild Korea’s foreign reserves position, which is now close to a record high.