Japan to outperform Korea in GDP growth

Japan’s economic growth rate is expected to surpass that of Korea for the first time in 15 years as the world’s third-largest economy gains momentum based on the yen’s rapid depreciation.

Japan’s economy has been recording unexpected growth over the last couple of years, while Korea has been performing below market expectations, according to data from central banks in Korea and Japan.

Korea’s GDP growth had fared well in comparison to Japan until 2011. Asia’s fourth-largest economy posted above its potential growth of between 3.6 percent and 3.8 percent, while Japan remained in the doldrums after two decades of stagnant growth.

But the tide is turning as Japan’s GDP grew 2.0 percent last year, while its first-quarter output increased by 0.9 percent this year, above its potential rate of 0.8 percent.

Korea also grew 2.0 percent last year, and 0.9 percent in the first quarter of this year.

However, economic data points to Japan’s GDP growth outperforming that of Korea.

For instance, Japan’s private household spending increased by 5.2 percent in the first three months of this year, up from a contraction of 0.7 percent in December.

Korea’s private consumption continued to remain in negative territory in the same period.

Improved consumer spending and exports boosted Japan’s first-quarter GDP growth.

The so-called “Abenomics” aimed at restoring growth through aggressive monetary easing and inflation led the country to revise its growth forecast upward to 2.9 percent from its initial projection of 2.3 percent.

Korea’s growth forecast by the central bank was lowered to 2.6 percent from 2.8 percent due to prolonged uncertainty over the global economy, especially in the eurozone.

However, analysts say it remains to be seen whether Japan’s GDP growth will overtake Korea’s as Seoul plans to frontload about 72 percent of some 5 trillion won in the government’s planned additional fiscal spending in the first half of this year.

With the Korean central bank’s benchmark rate cut for this month, Korea’s economy is likely to get a boost of 0.3 percentage points this year, and get back to achieving its traditional growth rate of over 4 percent next year.

The central bank cut its key base rate from 2.75 percent to 2.50 percent, an apparent move to support the government’s fiscal stimulus measures after earlier resisting government pressure.

By Park Hyong-ki (hkp@heraldcorp.com)