January 24, 2013 2:44 am

South Korean growth hits three-year low

South Korea’s economy undershot market expectations in the fourth quarter of 2012, capping a year of disappointing performance in which struggling exports and fragile domestic sentiment weighed on the economy.

Gross domestic product in the last three months of the year was just 1.5 per cent higher than a year earlier, the Bank of Korea said on Thursday. That pace pulled full-year growth down to 2 per cent, the weakest figure since 2009. The central bank had forecast annual growth of 3 per cent as recently as July.

Exports account for more than 50 per cent of the manufacturing-driven economy but have been hurt by weaker demand from Europe and elsewhere. Recently, they have been threatened by steady gains in the South Korean won.

South Korea’s exports rose 4 per cent year on year but declined 1.2 per cent from the previous quarter. Falling foreign sales of ships and general machinery cancelled out stronger performance from technology exporters such as Samsung Electronics.

Manufacturing groups have been keeping tight controls on capital expenditure amid the uncertain outlook for their key export markets. This trend continued as facilities investment fell in the quarter by 5.1 per cent from the same period in 2011.

The data disappointed economists who, according to a poll by Bloomberg, had expected year-on-year fourth-quarter growth of about 1.8 per cent.

But the figures did include some encouraging signs, said Ronald Man, an economist at HSBC. He pointed to an acceleration in quarter-on-quarter growth – at 0.4 per cent, the strongest figure since last March – as evidence that the economic cycle had passed its weakest point.

The Bank of Korea said growth would recover to 2.8 per cent this year. Pressure for it to boost the economy through monetary easing could be relieved by expectations of stronger global growth, and by the fact that the impact of two rate cuts last year is still to be fully felt.

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