Korea to see growth pick up midyear

Korea’s economic growth is expected to slow to 3.5 percent next year from this year’s 3.7 percent due to the fallout of the euro zone debt crisis, Goldman Sachs said yesterday.

“Growth is largely expected to slow in the beginning of 2012, due to the impact of the European debt problem, but is likely to pick up in the second half,” said Goldman Sachs economist Kwon Goo-hoon.

The global investment banking giant also predicted the economy, Asia’s fourth-largest, will expand 4.1 percent on-year in 2013.

Kwon said the Bank of Korea may move to cut the key interest rate by 0.5 percentage points in the first half of next year as part of efforts to boost domestic demand.

Korea’s seven-day repo rate currently stands at 3.25 percent, after the BOK froze the benchmark rate for the fifth straight month in November, citing downside growth risks such as Europe’s sovereign debt crisis.

The Goldman Sachs economist, meanwhile, projected the main Seoul bourse will gain upward momentum from the second quarter, forecasting a low of 1,800 and a high of 2,400.

As the situation in Europe is unlikely to be resolved in the short term, share prices may fall around 10 percent before trending higher, Kwon said.

Goldman Sachs recommended investors to buy shares of domestic-focused issues such as tech companies, non-life insurers and builders.

Kwon said Korea’s stocks are a good investment due to their being undervalued as a result of the country’s unique corporate governance structure, low dividend returns and the risk presented by North Korea.

Yonhap