Strong consumer product exports will support GDP growth in South Korea in the coming months and years even though overseas demand for capital goods will wane, and major markets such as China will suffer slower growth, according to one analyst.
Young Sun Kwon, an economist with Nomura, said improved demand from the U.S., the euro area and Japan would drive South Korea’s GDP growth, which will rise from 1.9 percent year-on-year in the first half of 2013 to 3.5 percent in the second half and 4 percent in 2014.
“Korean exporters have moved toward higher value-added products, which are more sensitive to demand from high-income individuals than low-income persons,” he explained. “We believe improved demand from the U.S., the Euro area and Japan should support Korea’s GDP growth by more than offsetting slowing Chinese demand.”
Research by Nomura found that even though exports to China accounted for a quarter of South Korean exports last year, around half of this total consisted of intermediate parts and components processed in China for re-export. This means that Chinese imports of South Korean products are to a large extent driven by demand from the U.S., Europe and Japan rather than Chinese consumers.
As a result, South Korea’s exports in the first half of 2013 to China and ASEAN increased 10 percent and 8 percent year-on-year, respectively, even though both Asian markets were subject to slowing economic growth rates.
“Looking ahead, we expect Korea’s exports to the US, China and ASEAN - for re-export to the US — to remain solid,” he said. “However, Korea’s capital goods exports, for example steel and shipbuilding, should remain weak.”
“Overall, we believe Korea’s exports will hold up in H2 2013 and 2014, as stronger consumer goods exports should more than offset weaker capital goods exports,” he said.
Contact Mike King at email@example.com.