Second-Quarter Income Growth Fastest in 21 Years

By Lee Hyo-sik Staff Reporter Korea's national income in the second quarter increased at the fastest pace in more than 21 years, on the back of improving terms of trade and greater revenues from overseas, the Bank of Korea (BOK) said Thursday. The gross domestic product (GDP) also jumped at the fastest clip in more than five years, with manufacturing output growth hitting a 36-year high thanks to rising demand both at home and abroad. A dramatic turnaround both in the national income and economic output has further raised hope that Asia's fourth-largest economy is heading for a V-shaped recovery. "Strong manufacturing data indicates the economy is firmly on the V-shape recovery path that will restore year-on-year GDP growth back to the positive territory in the third quarter of 2009," ING Group economist Prakash Sakpal said. "Accelerating economic recovery was one reason behind Fitch's latest upgrade of Korea's 'A-plus' sovereign rating outlook to "stable" from "negative." According to the BOK, the real gross national income (GNI), a barometer of actual purchasing power, surged 5.6 percent from April to June from three months earlier, the largest quarter-to-quarter expansion since the first quarter of 1988, when income jumped 6.2 percent. Compared to a year earlier, GNI also rose 0.5 percent, meaning Koreans have more money to spend, invest and save than last year. The central bank attributed the increase to improving terms of trade for the nation's exporters as a result of tamed oil and other international raw material costs, and rising won-based export prices. "Additionally, individuals and companies here earned more dividends, and salaries and interest incomes from abroad, boosting the domestic purchasing power. If the global economy continues to pick up, commodities prices remain stable and the local currency stays relatively strong against the dollar, Korea's GNI will head upward," a BOK official said. Meanwhile, the GDP, the total value of goods and services produced within the economy, expanded 2.6 percent in the second quarter from the previous quarter on rising industrial activities, with the aggressive fiscal spending stimulating domestic demand. Additionally, growing overseas demand for cars, cell phones and other Korea-made goods contributed to pushing up manufacturing output. The 2.6-percent expansion was the largest since the fourth quarter of 2003 when GDP jumped 2.6 percent. But from a year earlier, it fell 2.2 percent. Manufacturing-sector production jumped 8.9 percent from a quarter earlier, while the construction industry output inched down 0.2 percent. Outbound shipments, which account for about 60 percent of the economy, soared 14.7 percent, sharply rebounding from a 3.4-percent decline in the first quarter. Private consumption grew 3.6 percent and facility investments jumped 10.1 percent, up from an 11.2-percent decrease the previous quarter. A faster recovery is expected to pressure the BOK to hike key rates earlier. With the global financial panic over, we think acceleration in consumer and asset price inflation will be the policymakers' next worry. We reiterate our forecast that the BOK will be one of the first two Asia ― excluding Japan ― central banks to start hiking interest rates from the first quarter of 2010, ING said. The central bank has kept its key interest rate at 2 percent for the sixth consecutive month in August after slashing it by a total of 3.25 percentage points from October to February. It projected that the economy will contract 1.5 percent in 2009. leehs@koreatimes.co.kr