Maintains above-consensus 3.5 percent GDP growth forecast for 2012Goldman Sachs said that it will up its won-dollar exchange rate outlook while maintaining South Korea’s above-consensus GDP growth forecast of 3.5 percent for 2012.
It raised its won-dollar rate forecasts from 1,110, 1,080 and 1,040 on three-, six- and 12-month horizons, respectively, to 1,140, 1,100 and 1,050, said the leading investment bank through the Korean Economics Flash report released on Friday.
“We recognize that our above-consensus GDP growth forecast of 3.5 percent for 2012 has moderate downside risks but, in our view, is broadly balanced with potential upside from Chinese stimulus policy,” it said.
A modest acceleration in exports for South Korea is expected in the second half of this year, the report said, due to the recovery of Chinese growth from 7.4 percent in the first half of this year to 8.8 percent in the latter half, a moderating recession in Europe and sluggish yet stable growth in the U.S.
The report also noted that the stimulus impact would not be confined to Korean exports to China given the increasing intra-regional connections.
“We take note of structural changes in the intra-regional linkages, entailing the transformation of China from a production hub for Korea to a final demand destination, which points to regional multiplier effects through third (party) countries in the region,” it said.
It mentioned that Vietnam, where Korea has recently increased its FDI and exports rapidly, is a case in point as a new production center linking Korea and China.
“Data shows that Korean exports to Asian ex-Japan markets have become increasingly more sensitive to Chinese imports, and their sensitivity to Chinese imports is even higher than Korean exports to China,” said the report.
On the domestic side, the report commented that easing financial conditions and lowering oil prices would help offset the fiscal drag expected in the second half of 2012.
It also estimated that the heavy front-loading of government spending in the first half this year of 60 percent of the annual budget would lead to a fiscal drag of about 0.4 percent of GDP in the latter half, mostly offsetting gains in the first half.
Lower oil prices were also expected, if sustained at the current levels of about 10 percent relative to the average for the first four months of this year.
By Park Min-young (
claire@heraldcorp.com)
