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DBS Bank: South Korea's Strong Rebound Unsustainable 12 days ago
(RTTNews) - South Korea's strong growth rebound is little more than the snapback from the shell-shock of the global financial crisis and will not be sustained, a report released by DBS Bank said. The South Korean economy has recorded double-digit growth in the last two quarters, more than offsetting the 20% plunge in the final quarter of last year.
DBS Bank expects South Korea's economy to record a solid 7.5% growth in the fourth quarter, while it revised up its forecasts for GDP growth for 2009 to 0.5% from minus 0.1%, and for 2010 to 5.6% from 4%. However, the firm expects the economy's resurgence to moderate going into 2010, forecasting 3-4% GDP growth from the first quarter of 2010, lower than the long-term average of 4.9%.
The firm noted that demand for South Korean exports from major economies is likely to grow slowly next year, with consumer spending recovering only gradually. "We do expect emerging markets like Asia, with low consumer debt and high household savings, to pick up some of the slack in coming years," said Ma Tie Ying, an economist at DBS Bank. "But for the next 12 months, total export growth is likely to stay soft."
The firm also expressed concern over South Korea's mounting debt levels, pointing out that household debt growth at 12.2% had risen twice as fast as household disposable income growth at 5.7%, while the household debt-to-income ratio surpassed 140% in 2008.
"High debt is likely to constrain future growth," Tie Ying said. "We expect both monetary tightening and non-monetary regulation measures aimed at curbing private borrowings to be implemented soon."
DBS Bank expects the Bank of Korea to start the tightening cycle by January at the earliest, and forecast a 25 basis points increase in the first quarter to be followed by 50 basis points hikes in each of the three successive quarters to bring the benchmark repo rate to 3.75% by end-2010 from 2.00% at present.
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