South Korea Raises Growth Forecast on Stimulus But Strength of Recovery Still Weak

SKorea raises growth forecast after stimulus

June 26, 2013

AP - South Korea raised its growth forecast on Thursday to reflect the boost from government stimulus spending.

The finance ministry said in a statement that South Korea's economy will expand 2.7 percent this year, compared with its 2.3 percent estimate three months ago.

South Korea's parliament approved a $15 billion stimulus plan in May as companies are reluctant to step up investments amid an uncertain global economic outlook.

In 2012, South Korea's economic growth hit its lowest level in three years at just 2 percent.

The ministry said the risks that could dent the country's economy have been reduced compared with three months earlier.

But the upward revision does not mean the export-reliant economy is set to enjoy a full-fledged recovery, the finance ministry said.

"If you look at the speed of recovery, it is gradual and moderate," ministry director general Choi Sang-mok told reporters.

Exports have improved but continue to be weighed down by the weak yen which has reduced Japan's demand for South Korean products.

Big companies such as Samsung and Hyundai, which dominate South Korea's economy, are yet to scale up their capital expenditures, indicating that the recovery still largely relies on government stimulus.

Another worry for South Korea's economy is the impending withdrawal of monetary stimulus in the U.S.
But Choi said improvement in the U.S. economy could be a positive factor for South Korea's economy even though financial markets had been rattled by the Federal Reserve's announcement last week that it will scale back its bond-buying program later this year if the U.S. economy continues to recover.