South Korean Economy Seems Back on Track

Nation Now Faces Seoul Housing Bubble

SEOUL, Sept. 6 -- During the great financial swoon, confidence in South Korea's economy fell so far and so fast that the panicky government sacked the finance minister and arrested a financial blogger for excessive negativity. President Lee Myung-bak pleaded with currency traders to "refrain from greedily pursuing private interests."

Less than a year later, that swoon is so over. Asia's fourth-largest economy has suddenly got its swagger back.

Purchasing power surged between April and June at the highest rate in 21 years, rising 5.6 percent from the previous quarter, the Bank of Korea said last week. It said the gross domestic product jumped for the quarter at the fastest rate in five years, as South Korea benefited from lower oil prices, the depressed cost of raw materials and a weakened currency that made its cars and mobile phones cheaper on the world market.

Fear of the poorhouse has been chased away by alarm over housing prices, which have risen sharply in response to record-low interest rates. The government plans on Monday to crack down on what has become a real-estate bubble in Seoul, the country's dominant city. It will limit the amount of money home-buyers can borrow to no more than 50 or 60 percent of their annual income.

South Korean consumers, who lost their taste for foreign whiskey and imported cosmetics early in the year, are storming back into high-priced department stories, where luxury-goods sales spiked in August by as much as 18 percent compared with a year earlier. Sales of foreign cars in August were up 22 percent compared to a year ago and sales of video cameras were up nearly 60 percent, according to local press reports.

The South Korean stock market has risen well above the levels it was at last September, when the bankruptcy of Lehman Brothers triggered a world economic crisis.

Although they are up by more than 40 percent this year, stocks here remain a "sweet spot for investors" and are perhaps the best bargain in Asia, an analyst from Credit Suisse said last week.

Banks also are happy, posting higher profits and sitting on relatively large amounts of capital. Foreign currency reserves in the Bank of Korea have jumped back to pre-crisis levels.

Manufacturing is booming, and some South Korean conglomerates are devouring global market share.

Samsung Electronics, the second-largest maker of mobile phones, has fattened its slice of the handset market to 19.2 percent from 15.4 last year. Hyundai Motor Co., South Korea's biggest carmaker, increased its share of the U.S. car market to 4.8 percent in August from 3.3 percent a year earlier.

"South Korea is, in the end, a country of manufacturers, and the reason we are recovering faster than other countries is that there is a reserve force of craftsmen in every corner of industry," Lee Jae-yong, the heir to the Samsung Group, told reporters last week while traveling in Canada.

There is some concern among economists in Seoul that the economic recovery is outracing the government's stimulus strategy -- and that the result could be runaway inflation. Food prices are rising faster here than in most other developed countries.

So far, however, the government is keeping its foot on the accelerator. It plans to use stimulus money that had been reserved for later in the year and early next year.

"We need to keep an expansionary macroeconomic policy until signs of a solid global recovery materialize," Finance Minister Yoon Jeung-hyun said in London over the weekend during a meeting of finance ministers and central bankers from 20 wealthy and emerging nations.

Shoppers in Seoul seemed to celebrate stimulus spending this weekend, as crowds choked department store aisles that six months ago were nearly empty.