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By Seyoon Kim
Jan. 25 (Bloomberg) -- South Korea's economy expanded faster than expected in the fourth quarter, stoked by the biggest increase in exports in four years and a pickup in business investment.
Growth accelerated to 1.5 percent from the third quarter's 1.3 percent, the central bank said in Seoul today. That beat the median estimate of 1.3 percent in a Bloomberg News survey of 14 economists. The economy expanded 5.5 percent from a year earlier, the fastest pace in almost two years.
South Korea's stock index rose as the report added to confidence that exports to China, the Middle East and other emerging markets is helping Asian nations weather the U.S. slump. As global growth cools, the economy will be increasing reliant on spending by businesses and consumers to extend its longest expansion in 15 years.
``The Chinese economy is supporting economic growth in Korea and across Asia as the U.S. slows,'' said George Worthington, chief Asia-Pacific economist at Thomson IFR in Sydney. The report also shows ``quite a solid performance from the domestic economy even in the face of record oil prices.''
The Kospi index climbed 1.4 percent to 1,685.93 at 11:15 a.m. in Seoul. The won rose 0.2 percent to 947.25 per U.S. dollar. The yield on the three-year government bond jumped 9 basis points to 5.19 percent.
China's economy expanded more than 11 percent for the fourth straight quarter, figures showed yesterday, supporting global growth as a recession looms in the U.S.
Economists Disagree
Goldman Sachs Group Inc. this month raised its forecast for South Korea's economic growth, predicting an expansion of 5 percent in 2008 compared with 4.9 percent last year.
Others aren't as optimistic.
UBS AG today cut its 2008 growth forecast to 3.6 percent, which would be the weakest in five years, saying both exports and consumption will slow. It previously estimated 4.1 percent.
South Korea's ``challenges appear to be growing now we expect a U.S. recession,'' said Duncan Wooldridge, a Hong Kong- based economist at UBS. ``Export growth should slow in line with weaker demand from the U.S., Europe, and Japan. And a slowdown in credit will lead to weaker domestic demand, especially consumption.''
Concern that the U.S. slump will curb demand for Korean made cars and mobile phones has sent the Kospi index plunging 11 percent this year.
Domestic Demand
``The issue now is how much the U.S. slowdown will hurt exports and economic growth, not whether we'll be affected,'' said Oh Suktae, an economist at Citibank Korea Inc. in Seoul. ``Clearly, South Korea will have to rely more on the role of domestic demand.''
Private consumption increased 1.1 percent last quarter, today's report showed, compared with a 1.2 percent gain in the previous three months. Corporate investment in factories reversed the third quarter's drop and climbed 4.4 percent last quarter. Construction investment rose 0.4 percent.
The lowest jobless rate in five years and wage gains are underpinning consumer spending as fuel costs surge to a record.
President-elect Lee Myung Bak aims to stoke growth by encouraging firms to invest more and increase hiring. He announced a series of tax breaks on capital expenditure and has proposed relaxing rules that limit investment in banks by industrial groups.
`Engine for Growth'
``The engine for economic growth this year will be corporate investment,'' said Kwon Goohoon, Seoul-based economist at Goldman. ``Companies will spend if regulations are eased swiftly.''
The government expects domestic demand will account for about 90 percent of its forecast 4.8 percent growth rate in 2008.
For now, exports remain a major driver of growth. China surpassed the U.S. in 2003 to become South Korea's largest market, buying more than 21 percent of the nation's goods
Overseas shipments surged 7.3 percent in the fourth quarter, accelerating from a 1.5 percent gain in the third quarter, today's report showed. That was the biggest increase since the final quarter of 2003.
Exports to China jumped 18 percent in the period from Jan. 1 to Dec. 20 and shipments to the Middle East surged 40 percent.
Samsung Electronics Co., whose overseas sales account for 16 percent of the nation's total exports, has tapped demand in China and India. Asia's largest semiconductor maker forecast on Jan. 15 mobile-phone shipments will expand in the first quarter from the previous three months.
``Sales to emerging markets like the Middle East and Latin America are rising. That's what makes Korea less vulnerable to external shocks,'' said Ma Tieying, an economist at DBS Bank Ltd. in Singapore.
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