South Korea economy likely grew 2.7% in 2016 as Trump uncertainty looms

South Korea's Finance Minister Yoo Il-ho said a bigger risk to the economy was the "uncertainty from abroad".
South Korea's Finance Minister Yoo Il-ho said a bigger risk to the economy was the "uncertainty from abroad".PHOTO: REUTERS

NEW YORK (REUTERS) - South Korea's export-led economy likely grew by 2.7 per cent in 2016, slightly above the latest government estimate, and felt little impact from the impeachment of its president, the nation's finance minister told Reuters in an interview on Wednesday (Jan 11).

A bigger risk to the economy, Finance Minister Yoo Il Ho said, was the "uncertainty from abroad," including the incoming administration of US President-elect Donald Trump.

Mr Yoo, who is on a visit to New York and Boston to meet investors and bankers to gauge their views on South Korea but also to gain insight into the US political landscape, said the previously unreported gross domestic product revision could indicate solid growth for the first quarter of the new year.

"We expected that the final revision of our estimation of last year's growth rate was 2.6 per cent, down from 2.8 per cent. It turned out to be 2.7 per cent at the end of 2016," he said.

"Which in turn means there is a possibility that the economy in Korea is not so weak as we expected, at least in the first quarter, judging from this 0.1 per cent higher growth than we expected than the final revised value," he said.

However, he cautioned that it was too soon to decide if South Korea's habit since 2000 of implementing a supplementary budget to bolster a weak economy was necessary.

On Dec 28 the government slashed the 2017 economic growth estimate for Asia's fourth-largest economy down to 2.6 per cent for 2017 from an earlier estimate of 3 per cent.

Mr Yoo first spoke through a translator and then answered questions directly in English.

He said the corporate restructurings of the "so-called oversupplied industries" of shipping, shipbuilding, steel, construction and petrochemicals were ongoing.

"For the shipbuilding, I guess we may have tens of thousands (of lost jobs) in the process. But for the other sectors it is really hard to tell," he said.

South Korea's government has been in turmoil since the impeachment of President Park Geun Hye in a continuing influence-peddling scandal. A constitutional court must decide soon whether to uphold the Dec 9 decision by lawmakers.

While consumer confidence has plunged to a 7½-year low in the wake of the vote, Mr Yoo believes the nation is taking the vote in stride.

"We have not seen any real meaningful fluctuation or meaningful impact from inside politics yet. Maybe there is some kind of psychological factor on consumption or investment, but that doesn't seem too big so far," he said, noting how tightening US monetary policy was likely impacting the economy more than the scandal. "In the near future, until the Constitutional Court's decision, I don't see a real big thing, big impact," he said.

Mr Yoo met with dozens of investors, including Goldman Sachs Group's chief executive Lloyd Blankfein and Stephen Schwarzman, head of investment firm Blackstone Group, who also chairs Mr Trump's business advisory council. He said he wanted to get a read on how the new administration's political manoeuvers, trade policies and tax cuts might impact South Korea.

"My impression was that they found it difficult to exactly pinpoint the specific direction that the Trump administration will take in terms of the policies," Mr Yoo said through the translator. "They seem to believe that the policies are going to be different from what the candidate Trump had said and what the President Trump is going to do," he added.

He said he did not expect any big changes in the free trade agreements between South Korea and the United States.

Mr Trump has said he wants to renegotiate US trade deals and advocating an "America first" stance.

"We should wait until Mr Trump becomes president of the United States and he will show us his real policies in a couple of months. Then hopefully all those uncertainties will be completely gone. That would be the best scenario for us," Mr Yoo said.