Wednesday, August 15, 2012

Emerging New Markets, MIST to Outperform BRICS

What is BRICS? BRICS is formed as a group of five members which are Brazil, Russia, India, China and South Africa in 2009. The BRICS members are developed as they are fast-growing economics and industrialised countries with a combined nominal GDP of US$13.7 trillion and an estimated US$4 trillion in combined foreign reserves.

However, the new smaller markets of four countries show a positive economics growth than the bigger markets of BRICS during the financial economic crisis. The smaller market of four countries is formed as MIST nations. MIST represents four members from Mexico, Indonesia, South Korea and Turkey. Mexico will outperform than its neighbouring country, Brazil as it's currently the leading exporter in commodities to the biggest consumer market in China. Indonesia is one of the fastest booming countries in investments and manufacturing industries in Asia region. Since the living expenses and labour costs are getting more expensive in China, many foreign investors and manufacturers move their plants to Vietnam, Indonesia etc. where the cost is relatively cheaper than in China. South Korea is currently the main exporter for its technology in gadgets, electronics and vehicles to the worldwide. However, the recent report of the export growth data from China and South Korea reflects a significant slow down in July 2012 as the consumer spending begins to decrease due to uncertainty in economic and recession crisis in Europe and the USA. India is currently facing its economic slowdown in export and investments due to the weakness economy in Europe and the United States.

Will foreign investors divert and focus more from BRICS to MIST?

Goldman Sachs’s MIST Topping BRICs as Smaller Markets Outperform

SeongJoon Cho/Bloomberg
A worker inspects Kia Motors Corp. vehicles bound for export at the port in Mokpo, SouthKorea.

Jim O’Neill ushered in a decade-long investment boom in 2001 when he coined the term BRICs for the largest emerging markets. This year, a lesser-known acronym that the Goldman Sachs Asset Management chairman is helping to popularize has taken over for many investors. 

  Goldman Sachs Asset Management Chairman Jim O'Neill
Goldman Sachs Asset Management Chairman Jim O'Neill. Photographer: Thomas Lee/Bloomberg

The so-called MIST nations -- Mexico, Indonesia, South Korea and Turkey -- are the four biggest markets in the Goldman Sachs N-11 Equity Fund. (GSYAX) Opened in February, 2011 to invest in what O’Neill considers the next big 11 emerging markets, the fund has climbed 12 percent this year, compared with a 1.5 percent gain in Goldman Sachs’s fund for Brazil, Russia, India and China. 

“We see steady inflows into the Next 11 fund each week,” O’Neill, 55, said in a phone interview from London. “It hasn’t been affected by the disappointment in the U.S. and obviously the European markets especially, and all the disappointment in some of the BRIC markets.” 

O’Neill said he came up with the idea for an N-11 fund on a trip to China and South Korea two years ago as a way to help investors benefit from growth beyond the BRIC nations that had dominated emerging markets investing. With populations that for the most part are younger than the U.S. and Europe and have higher birth rates, fueling economic expansion, the N-11 nations are emerging from the shadow of the BRICs, where growth is slowing and investors are pulling out funds.

Outpacing BRIC

The MIST economies more than doubled in size in the past decade, topping Germany last year. In Mexico, Latin America’s second-biggest economy, record auto exports are helping growth outpace Brazil’s for a second year amid waning Chinese demand for the South American nation’s commodities. Indonesia’s domestic spending and investment helped the nation’s economic growth accelerate to 6.37 percent in the second quarter, surprising economists who forecast a slowdown. 

Besides the MIST nations, the N-11 countries include Bangladesh, Egypt, Nigeria, Pakistan, the Philippines and Vietnam. Iran is also a member, though Goldman Sachs says its fund doesn’t invest in Iran because it isn’t an open market for foreign investors. The nation is subject to sanctions imposed by the U.S. and European Union over its nuclear program. 

Goldman Sachs’s N-11 fund has beaten 93 percent of U.S.- based emerging-market equity funds this year, while the BRIC fund has lagged 89 percent of them, according to data compiled by Bloomberg. The N-11 fund has still trailed its benchmark, the MSCI GDP Weighted Next 11 ex-Iran Index, which has climbed 17 percent this year. The MSCI BRIC Index (MXBRIC) has risen 1.7 percent this year, more than the 1.5 percent gain for the Goldman Sachs BRIC fund.

Fuelling Growth

While outperforming them in growth this year, the MIST nations don’t approach the BRICs in economic output or population. Total GDP for the MIST nations was $3.9 trillion last year, less than one third of the $13.5 trillion BRIC economies and compared with $7.3 trillion for China alone, according to data compiled by Bloomberg. In population, the MIST nations have fewer than 500 million people, compared with about 2.9 billion in the BRIC nations. 

Goldman Sachs’s N-11 fund had $113 million in assets and was invested in 73 stocks at the end of the second quarter, while the New York-based bank’s BRIC fund had $410 million in assets and held 72 stocks. 

While O’Neill isn’t involved in either fund’s management, they were built to capture economic growth in the nations he identified as likely to make the greatest increased contribution to global GDP. The MIST nations accounted for about 73 percent of N-11 GDP last year, according to data compiled by Bloomberg.

Paying Off

The investment strategy is paying off. Mexico’s benchmark IPC Index (MEXBOL) has climbed 11 percent this year, compared with a 2.8 percent gain in Brazil’s Bovespa. (IBOV) Turkey’s ISE National 100 Index (XU100) has surged 28 percent and Indonesia’s Jakarta Composite Index (JCI) has gained 7.4 percent, while South Korea’s Kospi (KOSPI) has increased 3.3 percent. 

The BSE India Sensitive Index (SENSEX) is the best-performing among BRICs equity benchmarks, increasing 13 percent, compared with a 2.6 percent gain in Russia’s Micex Index (INDEXCF) and a 2 percent drop in the Shanghai Composite Index. (SHCOMP) By comparison, the Standard & Poor’s 500 Index (SPX) is up 11 percent this year, while the Stoxx Europe 600 Index (SXXP) has climbed 9.1 percent. 

“You’ve seen a rotation in the leadership based on rate of economic growth,” said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors, the third-largest U.S. brokerage with $1.2 trillion in client assets. “If you go back as far as just 2009, you’ll find people buying the BRIC story in a big way, and probably over-buying the BRIC story.”

Pouring in Money

Investors poured about $67 billion into BRIC stocks from 2001 to 2010 as they beat the S&P 500 by 281 percentage points. They withdrew about $15 billion last year, the most on an annual basis since at least 1996, according to Cambridge, Massachusetts-based research firm EPFR Global. 

Still, equity funds investing in the MIST nations haven’t been immune from global growth concern. While investors added a net $104 million to funds focused on Turkey and $123 million to Indonesian funds this year through Aug. 1, they withdrew $1.33 billion from South Korea and $115 million from Mexico, EPFR says. 

The MIST nations each account for at least 1 percent of global GDP and are likely to see that share increase this decade, O’Neill said. Of the four countries, O’Neill said Mexico and Turkey are the most attractive at the moment.


Mexico is increasingly competing with China for manufacturing as costs climb in the Asian nation, O’Neill said. Mexico’s economy grew 4.6 percent in the first three months of 2012, the fastest pace in six quarters, on increased shipments to the U.S. America Movil SAB (AMXL), the wireless carrier controlled by billionaire Carlos Slim, the world’s richest person according to the Bloomberg Billionaires Index, was the top holding in the N-11 fund at 7.9 percent at the end of June. 

Brazil, which grew at an average 3.7 percent annual rate from 2000 through 2010, trumping Mexico’s 2.1 percent expansion, is forecast to grow less than 3 percent for a second straight year in 2012, according to the median estimate of analysts surveyed by Bloomberg. 

Wells Fargo’s Christopher advised investors to sell stocks in the BRIC nations at points in the first half of the year and recommends buying equities in Indonesia, where economic growth has exceeded 6 percent for seven quarters. Plans by the government in Southeast Asia’s largest economy to build railways, airports and seaports to bind its islands closer together are helping to counter a slowdown in European demand for commodities exports. 

Christopher also recommends buying stocks in South Korea, which he says will benefit from rising exports as China’s domestic spending climbs.

Credit Rating

Fitch Ratings and Moody’s Investors Service have raised Indonesia’s debt to investment grade in the past eight months, with Fitch increasing it to BBB- in December and Moody’s lifting it to Baa3 in January. 

The credit outlook in India is moving in the opposite direction. India’s economy grew 5.3 percent in the first quarter, the least in nine years, and S&P warns that the country may be downgraded unless growth picks up and political roadblocks to decision-making are overcome. A blackout left 640 million people in India without light on July 31, a day after a separate power cut left 360 million people without electricity. 

India is suffering from “an absence of effective leadership,” O’Neill said. “India always is very proud of the fact it’s the biggest democracy in the world, but as I frequently joke with them, India’s democracy is so good that it doesn’t work.”
A phone call to the Indian embassy in Washington seeking comment wasn’t immediately returned.

Open Economies

With the exception of China, all the MIST nations ranked higher on the Geneva-based World Economic Forum’s 2012 trade openness index than the BRIC countries. While South Korea was ranked 34 out of 132 and Indonesia 58th, Russia trailed in position 112 and India at 100. 

Turkish stocks have rallied after the government cut its fiscal deficit to 1.3 percent of GDP last year from 3.6 percent in 2010, garnering a credit rating upgrade by Moody’s on June 20 to Ba1, one level below investment grade.
Russia’s $1.8 trillion economy, after unexpectedly accelerating in the first quarter, is feeling the squeeze from oil prices that plunged as much as 22 percent this year. The price of crude pared its losses in July and is now down 6.7 percent since the end of December. Russia relies on oil and gas exports for half of its budget revenue.

Russia’s Economy

Former finance minister Alexei Kudrin said on May 24 that Russia’s economy has a 50 percent chance of slipping into recession due to the crisis in Europe, the buyer of more than half its exports. Russia’s gross domestic product may grow as much as 4 percent this year, more than the government’s previous projection of 3.4 percent, Economy Minister Andrei Belousov said on July 20. 

While O’Neill includes South Korea in the MIST grouping, the nation differs from the other three in demographics, development and wealth. Known as one of the Asian Tigers as it grew an average 9 percent from the 1970s until the Asian financial crisis in 1997, South Korea will expand 2.9 percent this year, according to the median estimate of analysts surveyed by Bloomberg.

Aging Society

South Korea lacks the youth that O’Neill says will help drive growth in the other MIST nations. Only about 16 percent of South Korea’s population is under the age of 15, compared with at least 25 percent in Mexico, Indonesia and Turkey, according to estimates by the New York-based United Nations. 

South Korea “happens to be the only populated country that in my lifetime has transformed its income from that of an African country to being that of a G-7 country,” O’Neill said. “It’s an example that all these other countries can learn from.” 

The MIST nations may not outperform the BRICs for long, especially now that China’s government is stepping in to prime the economy, O’Neill said. Moreover, the Shanghai Composite’s decline has left it valued at 9.6 times estimated profit, compared with the three-year average of 14.7. The MSCI BRIC Index trades for about 9 times estimated profit, compared with 13.5 times for the S&P 500, data compiled by Bloomberg show.

Economic Weight

The recent underperformance in BRIC equities isn’t reason to give up on the long-term potential of economies that grew at an average pace four times faster than the U.S. from 2001 through 2010, O’Neill said. He forecasts that the BRIC nations will grow an average of about 6.5 percent a year through 2020, compared with 5.5 percent for the N-11 group. 

O’Neill says he has three times turned down requests from Goldman Sachs salespeople to start a fund focused only on the MIST countries, and not only for economic reasons. 

“You get very large exposure to them in the N-11 fund,” O’Neill said. “I’m also quite cognizant of not going down in history as being the guy that just constantly created acronyms.” 


Goldman's New Emerging Markets: From BRICS to MIST  
Bloomberg's Susan Li and Robyn Meredith discuss Goldman Sachs' new emerging markets, Mexico, Indonesia, South Korea and Turkey.

Indonesia Withstands Europe Woes as Growth Accelerates: Economy 

By Novrida Manurung and Hidayat Setiaji on August 06, 2012  Source: Bloomberg News

Consumer prices rose 4.56 percent last month from a year earlier, after climbing 4.53 percent in June, the statistics bureau said Aug. 1. Bank Indonesia forecasts inflation of 3.5 percent to 5.5 percent in 2012 and 2013. Photographer & Source: Ed Wray/Bloomberg 

Indonesia’s economic growth unexpectedly accelerated as rising investments countered declining exports, reducing pressure for monetary easing as the nation withstands Europe’s sovereign-debt crisis. 

Gross domestic product rose 6.37 percent in the three months ended June 30 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a revised 6.32 percent gain for the first quarter and the 6.1 percent median estimate of 24 economists surveyed by Bloomberg News.

Indonesia’s growth is the fastest among Group of 20 nations after China, even as the faltering global recovery hurt its currency and damped expansion in neighbors from Taiwan to Singapore. Investments accounted for 32.9 percent of GDP last quarter, the highest share since the Asian financial crisis, underscoring President Susilo Bambang Yudhoyono’s success in boosting confidence more than a decade after the nation sought an International Monetary Fund bailout. 

“Investment is being driven by strong business confidence and low interest rates,” said Gareth Leather, an economist at Capital Economics Ltd. in London. “Given the poor outlook for global demand and the likelihood that the crisis in the euro zone will worsen again soon, we expect interest rates in Indonesia to remain at their current record low level for the rest of this year and next.” 

The rupiah was little changed at 9,474 per dollar as of 1:34 p.m. in Jakarta, prices from local banks compiled by Bloomberg showed. It has dropped for six months, its longest losing streak since 1998, and is the worst performer this year among the 11 most traded Asian currencies tracked by Bloomberg. 

Rate Decision 
Bank Indonesia Governor Darmin Nasution and his board will keep the benchmark reference rate at 5.75 percent on Aug. 9, all but one of 26 economists surveyed by Bloomberg forecast. One predicted a quarter of a percentage point reduction. The central bank has avoided adding to a February interest-rate cut to the current record low. 

Policy makers from China to South Korea and the Philippines lowered rates last month, a move Nasution may avoid amid the risk of price pressures as the world’s largest Muslim population observes the fasting period of Ramadan and the Eid al-Fitr festival that marks its end. 

Consumer prices rose 4.56 percent last month from a year earlier, after climbing 4.53 percent in June, the statistics bureau said Aug. 1. Bank Indonesia forecasts inflation of 3.5 percent to 5.5 percent in 2012 and 2013. 

Inflation is accelerating elsewhere in Asia even amid signs of easing growth momentum. Taiwan said today consumer prices rose at the fastest pace in more than three years in July. In Australia, a private report showed job notices declined for a fourth straight month in July. 

European Disagreements 
Disagreements within the 17-nation euro area are undermining the future of the union, said Italy’s Prime Minister Mario Monti as the stand-off on European Central Bank support for Italian and Spanish debt hardened. Investor confidence in the region probably fell further in August, the Limburg, Germany-based Sentix research institute is forecast to say today. 

Yudhoyono has pledged to build more roads, ports and airport to achieve average growth of 6.6 percent by the end of 2014. In July, the central bank lowered its GDP forecast to about 6.1 percent to 6.5 percent this year, from a previous estimate of as much as 6.7 percent growth. The expansion may about 6.3 percent to 6.7 percent in 2013, it said. 

Indonesia’s growth last quarter is the fastest in the G-20 after China’s 7.6 percent. Many countries in the group haven’t released data for the same period. Saudi Arabia’s economy expanded 5.94 percent in the first quarter from a year earlier. 

Rising Investment 
While investment in Southeast Asia’s largest economy is increasing and has bolstered imports, easing exports led to a June trade deficit of $1.32 billion that data showed is the widest in at least five years. Exports fell 16.4 percent in June from a year earlier, while imports rose 10.7 percent. 

Second-quarter growth was mainly supported by investment, government spending and household consumption, while exports slowed due to declining commodity prices as demand eased on Europe’s debt crisis, according to the statistics bureau. 

Investment climbed 24 percent to 76.9 trillion rupiah ($8.1 billion) in the three months ended June 30 from a year earlier, M. Chatib Basri, chairman of the Investment Coordinating Board, said July 25. The country is targeting foreign and local investment of about 500 trillion rupiah in 2014, from as much as 290 trillion rupiah in 2012, he said in a Bloomberg interview. 

Low interest rates have spurred loan growth and helped commercial banks to post higher net profits. PT Bank Central Asia, Indonesia’s biggest financial services company by market value, reported a 10.5 percent gain in first-half net income to 5.3 trillion rupiah as lending increased 42 percent. 

“Domestic demand should stay resilient,” said Eugene Leow, a Singapore-based economist at DBS Group Holdings Ltd. “Credit growth has been well-supported. Other high frequency indicators such as car sales have also remained robust, supported by rising wealth and wage growth. In terms of investment, there have been no signs of slowing thus far.” 


Indonesia's economy: Domestic demand boosts expansion

"The key thing will be whether confidence domestically also takes a hit," Prakriti Sofat, Barclays

Indonesia's economy expanded more than expected in the second quarter as domestic consumption helped offset a decline in demand for exports. 

Between April and June, the economy grew by 6.4% from a year earlier. 

Analysts had expected growth of 6.1%.

Economists said low interest rates, stable consumer price growth and strong consumer and business confidence had helped boost domestic demand. 

Indonesia is South East Asia's largest economy. 

"As per today's data, Indonesia remains one of the fastest growing, and perhaps more importantly, one of the most stable economies in Asia," said Taimur Baig, an economist with Deutsche Bank.

Domestic consumption accounts for almost 60% of Indonesia's overall economy.

“Start Quote

The key vulnerability for Indonesia comes from its exposure to China”  Prakriti Sofat Barclays
'Key vulnerability' 
Despite the robust numbers and its relatively low reliance on exports, analysts warned that Indonesia's growth may be still be affected by a slowdown in the global economy, especially in China. 

Commodities and natural resources make up the bulk of Indonesia's exports and China is a key market for shipments of those products. 

However, growth in China has been slowing. The Chinese economy grew by 7.6% in the second quarter, its slowest pace of growth in three years.

As a result, demand for commodities is expected to slow, resulting in a fall in prices, which may hurt Indonesia's growth.

"The key vulnerability for Indonesia comes from its exposure to China," Prakriti Sofat, an economist with Barclays, told the BBC.

Ms Sofat warned that if China's economy continued to slow, the effect on commodity prices and on Indonesia's growth may be much bigger.

"That terms of trade effect also feeds into household spending as well as business confidence and hence the investment in the economy," she added. 


UPDATE 3-Mexico industry output grows at fastest pace in 9 months

Mon Aug 13, 2012 12:43pm EDT  Source: Reuters
* Production rises 1.3 pct in June vs May, poll saw 1 pct * Output up 3.7 pct vs June 2011, poll saw 3.5 pct
* Both manufacturing and construction up strongly

MEXICO CITY, Aug 13 (Reuters) - Mexican industrial output rose the most in nine months in June from May, led by manufacturing gains and underscoring solid growth that bodes for steady interest rates in the coming months.

Industrial production rose a seasonally adjusted 1.3 percent in June from May, the national statistics agency said on Monday, better than expected in a Reuters poll that saw a 1 percent rise after a dip in May, which was revised to a 0.65 percent slide.

The pace of industrial growth was the fastest since last September as the manufacturing subcomponent rose 1.6 percent in June from the previous month fueled by export orders.

Mining output, another subcomponent of the industrial sector, was flat while utilities slipped, but construction activity increased 1.49 percent, pointing to solid domestic demand.

The pace of industrial growth was the fastest since last September as manufacturing output rose 1.6 percent from the previous month fueled by export orders. Construction activity, another subcomponent of the industrial sector, increased 1.49 percent, pointing to solid domestic demand.

"Industrial production performance draws a clear picture of the current sources of the Mexican economy's growth: both external and domestic factors," Barclays analyst Marco Oviedo wrote in a note.

Latin America's No. 2 economy has been shielded from a wider global slowdown that has pushed Brazil to cut interest rates due to U.S. demand for local manufactured goods, although exports have begun to slow and U.S. manufacturing data is weakening.

"As a consequence, we expect some softening in Mexico's industrial activity in the second half (of 2012)," BNP Paribas analyst Nader Nazmi wrote in a note.
Compared with June 2011, industrial output rose 3.7 percent, above an expected 3.5 percent increase and compared to an upwardly revised 3.5 percent rate in May.

Mexican economic growth likely slowed in the second quarter to 0.8 percent from the first quarter, when it posted a 1.3 percent advance, according to a Reuters poll ahead of gross domestic product data due on Thursday.

While the economy may be easing from the unexpectedly strong Q1, the annual inflation rate rose to a more than two-year high of 4.42 percent in July, above the central bank's 4 percent limit.

But policymakers have said the spike should be temporary and investors are betting the country's benchmark interest rate will be held steady at 4.50 percent through mid-2014.


Mexico could pass Brazil as top LatAm economy in 10 years-Nomura

MEXICO CITY | Wed Aug 8, 2012 5:18pm EDT  Source: Reuters
MEXICO CITY Aug 8 (Reuters) - Mexico could overtake Brazil as Latin America's number-one economy in 10 years, according to research by economists at Nomura.
Mexico could become a 'jaguar' economy, similar to the fast-growing 'tiger' economies of East Asia, if its newly-elected government succeeds in kick-starting lackluster growth with ambitious economic reforms, Nomura said.
Optimism about the chance of change in Mexico contrasted with reform fatigue in Brazil, where the government has wheeled out successive measures to boost local industry and protect exporters from a strong exchange rate.

The International Monetary Fund estimates Brazil has an economy twice the size of Mexico's at $2.4 trillion, but Nomura said the gap could disappear by 2022 if Mexico grows at the top end of the bank's forecast range and Brazil at the low end.

Over the next decade, Nomura forecasts average growth of 2.75 percent to 3.25 percent in Brazil and 4.25 percent to 4.75 percent in Mexico. If both countries grow at the low or high end of the range, Mexico would overtake Brazil in 2028-29.

"If Brazil doesn't pass any structural reforms and Mexico does, then the scenario 'Mexico high - Brazil low growth' seems the most likely," Nomura economist Benito Berber said.

If Brazil's economy grows at the top end of Nomura's range and Mexico at the low end, Brazil would keep the upper hand.

Incoming Mexican president Enrique Pena Nieto aims to lift annual economic growth to 6 percent by overhauling Mexico's labor market, state-run oil sector and tax base.

Brazil and Mexico have leapfrogged each other as Latin America's top economy in recent decades and Brazil moved back into pole position in 2005. While political stagnation in Mexico depressed growth, Brazil became the investors' darling, buoyed by demand from China for its commodity exports.

But Brazil has hit a soft patch. Economists polled by Reuters expect 2 percent growth in Brazil this year, a far cry from the 7.5 percent boom in 2010, and 3.7 percent in Mexico. The difference is helping to pull foreign investors into Mexican stocks and bonds.

A recent rush of new factory announcements, for Italian tire maker Pirelli, Volkswagen's luxury car unit Audi and U.S. carmaker Ford Motor Co, is also highlighting the country's advantages over China as a place to make goods for export to the neighboring United States.

"Mexico is the place to be for companies and investors," said Geoffrey Pazzanese, who co-manages Federated Investors' $523 million Federated InterContinental Fund. The fund has 12 percent of holdings in Mexico as opposed to 8 percent in Brazil.

But economists expect Brazil to pick up as early as the second half of this year, with the Reuters poll showing expected growth of 4 percent in 2013 - outshining Mexico's 3.5 percent.

"Brazil will probably re-accelerate to faster growth than Mexico over the next couple of years," said Pazzanese, noting that Brazil's economy was more cyclical than Mexico's.


South Korea's Growth Slows as Another Rate Cut Looms

Published: Wednesday, 25 Jul 2012 | 9:13 PM ET  By: Reuters
South Korea's economy grew 0.4 percent in the April-June period over the previous quarter, data showed on Thursday, missing the market's median forecast and backing the case for another interest rate cut soon.

The median forecast in a Reuters survey was for Asia's fourth-largest economy to grow by 0.5 percent in the second quarter over the previous three months after a 0.9 percent rise in the first quarter.

Analysts said the data supported the market's view the Bank of Korea would soon lower interest rates again after delivering a surprise cut early this month.

"The Q2 GDP data was below market expectations but it's not extremely low, and so just one additional rate cut appears more likely," said Lee Sang-jae, an economist at Hyundai Securities.

"In terms of the timing, at this kind of Q2 growth, I think it's more likely that the rate cut will come in September rather than in August." 

Early this month, the Bank of Korea surprised markets by cutting its policy interest rate for the first time in more than three years, and the following day announced an unusually big downgrade to its economic growth projection for this year.

It now sees South Korea's economic growth slowing to 3 percent from last year's 3.6 percent, instead of quickening to 3.7 percent as it had originally projected in late 2011 before cutting the forecast slightly to 3.5 percent in April.
Overseas sales of smartphones, ships and cars will suffer from the weakening demand from crisis-hit Europe, while consumer spending at home will remain depressed under piles of debt owed by households. 

The central bank says inflation will remain below its 3 percent target for a considerable period and that economic growth would trail an optimum pace of expansion, prompting bond prices to soar and yields to drop below the reduced policy rate.

The Bank of Korea is due to release revised figures to these estimates by early September.


Turkey to Sign Free-Trade Accord With South Korea Aug. 1

Turkey will sign a free-trade agreement with South Korea on Aug. 1, paving the way to duty- free bilateral commerce, according to Turkish Economy Minister Zafer Caglayan.

The deal, to be signed in Ankara, will enable Turkish exporters to sell products to South Korea, whose imports were valued at $524 billion in 2011, on a preferred-partner basis, Caglayan said in an e-mailed statement yesterday.

Caglayan said 93 percent of Turkish goods sold to South Korea will be duty-free after the accord takes effect. The agreement will help Turkey close its trade gap with South Korea, which is selling 12 times more goods to Turkey than its Turkish purchases, he said. The two countries will have 10 years to abolish customs duties on their bilateral trade, he said.

The agreement will bring Turkish exporters to an equal level with those from the European Union and the U.S., which signed similar deals with South Korea that took effect in July 2011 and March 15, respectively, Caglayan said.


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