S. Korea's Q4 GDP Expands 1.7%, Faster Than Expected

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S. Korea's Q4 GDP Expands 1.7%, Faster Than Expected

Jan. 25, 2006 -- South Korea's economy expanded at a faster pace than economists expected as companies including Samsung SDI Co. increased investment.

Gross domestic product rose a seasonally adjusted 1.7 percent from the previous quarter, when it climbed 1.9 percent, the central bank said today in a statement in Seoul. That's the second-fastest pace in two years and exceeds the median forecast for a 1.6 percent gain in a Bloomberg survey of eight economists.

South Korea joins Japan in reporting an increase in spending by companies as rising demand at home and overseas prompts capacity expansions. The government and the central bank forecast growth in Asia's third-largest economy will accelerate to 5 percent this year, the fastest in four years.

``The environment is ripe for capital expenditure recovery,'' said Robert Subbaraman, senior economist at Lehman Brothers Japan Inc. in Tokyo. ``The Korean economic recovery is broadening out.''

From a year earlier, the economy expanded 5.2 percent in the three months to Dec. 31. The economy grew 4 percent in 2005.

South Korea's benchmark Kospi index rose 1.5 percent to 1346.53 at 9:52 a.m. in Seoul.

Corporate investment in plant and machinery rose 5.9 percent in the fourth quarter from the third, today's report showed.

Samsung SDI, the world's largest maker of plasma display panels, said last week that the company plans to double capital spending to 1 trillion won this year to meet demand for flat- screen televisions.

Corporate Spending

In Japan, manufacturers including Toyota Motor Corp. are building factories and hiring more workers, bolstering growth in an economy that has had three recessions in 15 years.

Capital spending ``is forecast to be the single most important driver in the first half of 2006'' in Japan, according to Jesper Koll, chief Japan economist at Merrill Lynch & Co.

In South Korea, private spending increased 1.2 percent in the fourth quarter from the third.

Tax cuts and interest rates near record lows are encouraging South Koreans to spend more, spurring economic growth and sales in stores such as Lotte Department Store Co.

Consumer spending is recovering from a slump in 2003 and 2004 when credit-card debts forced South Koreans to cut back on cars and other luxuries.

Department Stores

Sales at South Korea's top three department stores, had record gains in December. Combined sales at Lotte Department Store, Hyundai Department Store Co., and Shinsegae Co. grew 19 percent from a year earlier, the government said Jan. 22.

South Korean consumers turned optimistic for the first time in eight months in December, a government report showed Jan. 5. The country's jobless rate dropped to a 21-month low in December and consumer goods sales rose 2 percent in November from October.

Hyundai Motor Co., the country's largest automaker, said its domestic sales jumped 32 percent to 67,420 units in December as a government tax break on purchases helped boost demand. The company aims for an 18 percent increase in group sales this year.

``The increase in domestic demand widened thanks to a rise in private spending and corporate investment,'' today's central bank statement said. ``Gains in exports narrowed.''

Exports of goods rose 0.8 percent from the third quarter, when they gained 7.4 percent the central bank said.

LG Electronics Inc., Asia's second-largest mobile-phone maker, yesterday said profit rose 91 percent in the fourth quarter as sales of handsets and flat-panel displays soared. LG.Philips LCD Co., whose biggest shareholder is LG Electronics, earlier this month said profit jumped ninefold amid surging demand for liquid-crystal display televisions.

LG, Samsung Electronics

Samsung Electronics Co., South Korea's largest exporter, said Jan. 13 it posted its first quarterly profit gain in five in the fourth quarter. It forecast higher earnings this year on rising demand for flat-screen televisions and computer memory chips.

``We experienced strong demand across all'' markets, including Europe, U.S. and China, Ron Wirahadiraksa, chief financial officer at LG.Philips LCD said Jan. 12.

The government forecast exports, which make up about two- fifths of the economy, will expand 11.7 percent this year following last year's 12.2 percent gain. Overseas sales of electronic products will probably climb 13 percent, more than double last year's pace, the government said.

Concerns that rising consumer spending may fuel inflation prompted the central bank to raise interest rates in October and December. Inflation will accelerate to 3 percent this year from 2.7 percent in 2005, the bank said Dec. 6.

The central bank on Jan. 12 kept its benchmark interest rate unchanged at 3.75 percent after gains in the won slowed inflation. The won gained 2.8 percent against the dollar in the fourth quarter.


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