World Economy

S. Korea Growth Moderate

The Korean economy continued to grow at a moderate pace owing to solid exports and consumption
S. Korea Growth Moderate S. Korea Growth Moderate

South Korea's economy is maintaining its modest rate of expansion on the back of solid exports and improved private spending, a state-run think tank said Sunday.

"The Korean economy continued to grow at a moderate pace owing to exports and consumption. Mining and manufacturing production remained stagnant even after considering the influence from the Lunar New Year holiday, suggesting that the improvement in production-related indicators is limited," the Korea Development Institute said in its monthly evaluation of the country's economic conditions, Yonhap reported.

The institute said investment-related indicators moderated gradually as construction investment posted slow growth amid the weakening momentum in facilities investment. "However, external conditions stayed favorable and consumption improved, implying that a rapid slowdown in growth is highly unlikely," it said.

The country's industrial output grew 1.8% on-year in the first two months of 2018, maintaining its recovery pace. Retail sales gained 6.3% in February from a year earlier, sharply accelerating from the previous month's 1.2% on-year rise.

Facility investment soared 9.7% in February, decelerating from the 21.6% on-year expansion in January.

On the exports side, February's outbound shipment growth decelerated, but exports are maintaining a decent pace of growth, according to the KDI. The country's outbound shipments in March moved up 6% on-year, up from the previous month's 3.9% gain, the KDI added.

Rate Freeze

South Korea's central bank will likely hold its key rate steady at the upcoming monetary policy meeting due largely to low inflationary pressure, a leading provider of economic analysis said Sunday.

The Bank of Korea is set to hold its rate review session Thursday to decide whether to keep or adjust the current 1.5%. The BoK has maintained the present rate since it raised it by a quarter percentage point from an all-time low of 1.25% in November.

"The Bank of Korea will likely keep the policy rate unchanged at 1.5% in April. Following November's 25-basis point increase, there has been little pressure for the BoK to raise rates further," Moody's Analytics said in its weekly report.

"Inflation continues to be subdued, with consumer prices up a mild 1.3% year-on-year in March. A large minimum wage hike at the start of the year and the government's expansionary policies have had a limited impact on price pressures to date," it said.

A strengthening won, which recently hit its highest point in more than three years last week, is also helping inflation pressure remain low, the Moody's report added.

BoK Governor Lee Ju-yeol has said that the central bank will maintain its accommodative stance for a while, as the South Korean economy shows weak signs of recovery.

But some experts have pointed out that the BoK will come under pressure to lift the key rate a couple of times this year, as the US Fed's rate rise in March caused South Korea's base rate to be lower than that of the United States for the first time in more than 10 years.

The rate imbalance could spark an outflow of foreign capital, which accounts for over 30% of stock holdings in Asia's fourth-largest economy.

Inflationary Pressure

The sharp rise in the country's minimum wage this year is fueling inflationary pressure and concerns of public charge hikes going forward that can increase the burden on ordinary people, market watchers said Sunday.

The government marked up the minimum wage for all workers by 16.4% in 2018 to 7,530 won ($7.04) from 6,470 in 2017 as part of a broader move by the incumbent Moon Jae-in administration to reduce the pay gap between workers and fuel private consumption that can act as a growth engine for the economy as a whole.

Observers said that while the government is keeping close tabs on prices and vowed to check sudden spikes, there are signs that businesses, burdened with higher wages, have been moving to raise prices on goods and services they are offering.

"Prices for eating out and general food costs have gone up, along with hints that transportation-related costs will be adjusted," a market analyst said.

He said, in particular, the price for eating out has been affected the most, with numbers for fast food and coffee joints all moving upward. Some businesses have also started to charge extra for food delivery.

Data showed that prices of various food, like frozen dumplings, and processed food, such as ham and fish cakes, as well as beverages, have all risen.

"The rise in the minimum wage has not only affected individual businesses, who have been forced to pass on the burden to patrons, but the distribution sector and materials prices," a local representative of restaurant business said. He stressed businesses have to adjust prices if they do not want to take a hit in earnings.

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