Korea's GDP seen to ease to 0.8% in 4Q13

Call it a 'technical slowdown', says analysts.

According to DBS, Korea's fourth quarter GDP (preliminary) will be released tomorrow morning. Real GDP growth is expected to ease slightly to 0.8% QoQ sa (3.2% annualized) in 4Q, compared to 1.1% in the preceding two quarters.

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The GDP figures consistently outperformed the monthly economic data during the first three quarters of 2013. If the statistical discrepancy needs to be eliminated for the full year of 2013, it will mean a technical slowdown in 4Q GDP (or a downward revision to 1Q-3Q GDP).

Nonetheless, our growth forecast of 2.8% for 2013 still looks achievable. And we project higher growth of 3.5% in 2014. On the fundamental side, the export sector remains competitive despite the KRW’s appreciation against the JPY. The occupation rates of Korea’s key products (electronics, automobiles) in key markets (US, China) have remained stable or even increased over the past one year.

Export growth is expected to pick up this year, under the assumptions that external demand conditions will improve and the yen’s decline will become more gradual.

Domestic demand is expected to remain firm. The residential property market has bottomed out thanks to both cyclical reasons and the government’s policy support (e.g., reduction in the property transaction tax).

Housing prices in Seoul have stopped declining after a 4-year long correction, and the nationwide housing prices have rebounded since 4Q13. Meanwhile, the labor market is steady and resilient, with the jobless rate sliding to the pre-2008 low of 3.0%. A higher labor participation rate and strong employment growth have been seen in the elderly group (especially females) over the past half a year.

This is a positive structural development, which helps to address the intrinsic drag on potential GDP growth as a result of population aging.