HSBC projects 3.8% growth for Korea in 2013

Hongkong and Shanghai Banking Corp. forecast 3.8 percent economic growth for Korea next year, higher than this year’s projected 2.6 percent, as exports are expected to pick up on China’s economic recovery.

Frederic Neumann, co-head of Asian Economic Research for HSBC, told reporters here on Friday that the Korean economy faces a “challenging outlook for exports and industrial output” in the last three months of this year, but that economic growth would likely pick up in 2013 as Asia’s fourth-largest economy benefitted from China’s growth acceleration.

HSBC’s 2012 and 2013 growth forecasts were higher than projections by the Korean central bank. The Bank of Korea cut its 2012 and 2013 growth estimates to 2.4 percent and 3.2 percent, respectively.

While high public debts have dragged down the global economy, especially in the eurozone where the fiscal crisis is turning into a banking crisis, Neumann noted Korea’s household debt problem has worsened while that of the U.S. has improved.

He added that household debt problems will serve as “high growth risks, not financial risks,” as households’ high indebtedness crimps capacity to pull off leverage for growth when exports are weak.

In Korea, where the wealth effect through property is stronger than in most other major Asian economies and the U.S., some 70,000 homes remained unsold as of July this year, according to HSBC data.

“The glut of unsold residential property needs to clear before demand can pull up property prices,” the economist said.

He also warned that the manufacturing conditions remain fragile in Korea and Asia, pointing to the latest bank’s purchasing managers index.

HSBC expects the BOK to keep the benchmark interest rate at 2.75 percent through the year-end, freeze it over the first half of next year, and raise it by 0.25 percentage point in the third and fourth quarters to reach 3.25 percent by the end of next year, and to 3.75 percent by the end of 2014.

As for growth in other Asian countries, the bank projected 8.6 percent for China, 1.6 percent for Japan, 6.9 percent for India, 5.4 percent for Taiwan and 4.5 percent for Thailand.

HSBC also said Korea’s consumer price index is expected to gain 2.2 percent this year, 3.5 percent next year and 3.6 percent in 2014.

Korea’s exports are projected to drop 1.1 percent this year, according to HSBC, but are likely to jump 11.6 percent next year and 23.7 percent the year after.

By Kim So-hyun (sophie@heraldcorp.com)