Shaw Capital Management: South Koreas Economy

South Koreas output is continuing to accelerate, and the government needs to exit from its accommodative economic policies earlier than anticipated. The HSBC Koreas 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 Koreas 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 Koreas 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 Koreas 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 years financial and
economic crisis.

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