Financial thoughts

South Korea’s economy expanded at a faster pace than initially estimated in the third quarter, boosted by rising overseas orders for cars and semiconductors plus local spending by consumers and companies.

Gross domestic product increased 3.2 percent in the three months ended Sept. 30, compared with the 2.9 percent gain reported in October, the central bank said in Seoul today. The economy grew 0.9 percent in the third quarter from a year earlier, compared with the previous estimate of 0.6 percent.

“South Korea’s economy has benefited from relatively better exports as well as the effects of expansionary policies,” said Ryu Seung Sun, an economist at HMC Investment Securities Co. in Seoul. “Economic growth will remain relatively strong, even though the pace may weaken somewhat in coming quarters.”

South Korea has led a regional rebound with China and Singapore as companies including Samsung Electronics Co. and LG Electronics Inc. reported a jump in profits. The nation is projected to be one of the first in Asia to boost interest rates as it helps lead the region out of a slowdown caused by the global financial crisis.

LG Electronics Inc., the world’s second-largest maker of liquid-crystal-display televisions, reported third-quarter profit that beat analysts’ estimates, driven by record shipments of televisions and higher sales of appliances.

Government Spending

The central bank and the government have raised their economic forecasts for this year. Finance Minister Yoon Jeung Hyun said the economy will probably post zero growth, reversing an earlier forecast for a contraction, and President Lee Myung Bak said last month GDP may expand 5 percent in 2010.

To help prevent the economy from sliding into a recession, the central bank cut the benchmark interest rate by 3.25 percentage points between October and February to a record-low 2 percent and the government increased spending payday loans for bad credit. The benchmark Kospi stock index has risen 44 percent this year and sales at the nation’s main department stores gained the most in 14 months in October.

Exports, which account for about half of the $929 billion economy, rose for the first time in 13 months in November, a government report showed Dec. 1. Overseas shipments will increase 13 percent to $410 billion next year, boosted by demand for semiconductors, cars and display panels, the government said.

South Korea’s exports of goods gained 5.2 percent in the third quarter from the previous three months, compared with the initial 5.1 percent gain estimated in October, today’s report showed. Corporate investment in factories and equipment climbed 10.4 percent in the quarter, up from the 8.9 percent initial estimate.

Private Consumption

Private consumption rose 1.5 from the second quarter, up from the 1.4 percent earlier estimated. Manufacturing rose 9.8 percent from the second quarter compared with the initial estimate of 8.7 percent, while construction investment dropped 2 percent.

Still, there are signs economic growth may slow in coming months. Manufacturers’ confidence has slipped to the lowest level in four months due to uncertainty about the outlook for domestic demand. Consumer confidence also fell in November for the first time in eight months and factory production unexpectedly declined 3.8 percent in October from September.

South Korea’s corporate earnings may fall short of analyst estimates in 2010 as costs climb and the benefits from stimulus measures fade, according to Samsung Securities Co., the nation’s top-ranked brokerage.

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