Shaw Capital Management: South Korea’s Economy

South Korea’s output is continuing to accelerate, and the government needs
to exit from its accommodative economic policies earlier than anticipated.
The HSBC Korea’s purchasing managers’ index (PMI) rose from 55.6 in
January to 58.2 in February — the highest since December 2007. New orders
are coming in, and there are rising backlogs of unfulfilled orders.

Shaw Capital Management: South Korea’s Economy - Employment too is rising suggesting that the current pace of growth will
be sustained for the next several months. Inflation paced a little with
consumer prices up 3.1% in January from a year earlier. But inflation in
Korea is likely to remain stable for some months.

The central bank is expected to tighten its monetary policy by starting to
raise interest rates from the current record low of 2% in the later part of
the second quarter as the government retains its focus on job creation and
growth.

Shaw Capital Management: South Korea’s Economy - Exports expanded 31% year on year, better than Reuters’ forecast of 22.7%.
South Korea posted a much larger-than-expected trade surplus of $2.33
billion in February as ship deliveries boosted exports, while imports fell as
holidays reduced crude oil and natural gas demand.

The government expects a monthly trade surplus of more than $1 billion
from March as demand improves. The current-account surplus is most
likely to dwindle to around $17 billion this year from $42.7 billion in 2009
as imports rise. A new Bank of Korea governor, widely expected to be a
more pro-government figure, will not rush to raise rates after taking office
in April.

Exports grew 31% from a year earlier to $33.27 billion, faster than the
expected rise of 21%, while imports climbed 36.9% to $30.94 billion, exceeding
a forecast of an expansion of 34.0%.

South Korea, which is heading the G20 group of leading economies wants
to leave an imprint of its presidency.

Shaw Capital Management: South Korea’s Economy - It is trying to introduce a system of international currency swaps which it
hopes will reduce global imbalances by lessening the need for countries to
accumulate reserves, seen as one of the causes of last year’s financial and
economic crisis.

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