South Korea just surprised the market with a stronger than expected economic rebound in the third quarter.
With the help of substantial government stimulus and interest rates cut to just 2%, the country’s GDP grew 2.9% for Q3 vs. Q2.
This is the fastest pace in seven years.
Yonhap: “The Korean economy is recovering fast. In the third quarter, the private sector led a recovery,” Kim Myung-kee, director general of the BOK’s economic statistics division, told a press conference. “But because the third-quarter growth mostly came as destocking was wrapping up, it will take some time for people to feel the economic recovery.”
Kim also hinted that the Korean economy may not contract this year compared to 2008 if local economic activity continues to improve and the global economy maintains its recovery phase. The BOK earlier forecast a 1.6 per cent contraction in 2009.
Should this rebound be sustained into 2010, which seems likely, the Korean government will be under substantial pressure to raise interest rates which remain historically low. Thus Korea could be one of the next economies to enter a rate-tightening cycle, which would be supportive for the Korean Won vs. the U.S. dollar.
Yonhap: The won is likely to average 1,124 per the dollar for the January-June period in 2010, the Federation of Korean Industries said in a survey of 108 analysts and foreign-exchange officials at major companies.