The Numbers Up, but Concerns and Challenges Remaining

The Bank of Korea released its official data for GDP this week: Korea’s quarter-on-quarter GDP growth was the highest at 2.9% in more than seven years. This activity was largely due to a sharp rebound in exports: exports increased 5.1% in Q3 up from Q2.

According to the central bank of Korea, the overall consumer sentiment index rose to its highest level since Q! of 2002. According to the National Statistical Office on Friday, sales index by consumer goods rose by 6.7 percent last month from a year earlier mainly due to the increase in automobile sales. Production in the semiconductor and car sectors also grew by more than 20% YOY.

Capital investment at the private level begins to resume. For instance, Samsung that posted a record high quarterly operating profit of 30.3 billion USD in Q3 announced its plan to boost capital spending on semiconductors and displays next year to around 7.2 billion USD.

While these indicators seem upbeat, concerns remain as to whether the Korean economy will be continuously showing a fast recovery.

Korea has heavily depended on the export of manufactured goods. Korea has diversified its exports to the developing countries like China, India, and South America to compensate for some of the decline in exports to the U.S. and Europe. However, many parts of the global economy are contracting or operating on a reinflated economy propelled by the economic stimulus money to a large extent, which would dry up sooner or later.

In the meantime, unlike Japan, Korean household’s saving rate is low: they reduced their savings rate from 23% of disposable income in 1998 to only 3% in 2008. This means that a lower savings rate won’t serve as a buffer.

The unemployment situation remains grim. The unemployment rate fell to 3.4% for September. Korea face university glut of university graduates, although this situation is not limited to Korea. Moreover, there is a growing concern over rising income disparity.

Amid global coordinated stimulus package and the hot money flowing into Korea and BRICs, Korean has to see what that would do to the Korean economy.

Meanwhile, the Korean president, Lee promised full-fledged support for education and science and technology sectors. Of course, the devil is in the details. Korean firms in major industries have lamented the fact that there is a discrepancy between industry demands for high level technology skills and the qualification of engineering school graduates for some time.

Despite concerns, risks and challenges, there is plenty good that can come from the crisis if one can assess the lessons of various economies’ experiences and identify the right patterns to pursue.