[Op-Ed] Surprise

Strategy and Finance Minister Yoon Jeung-hyun said Monday last week, “The country’s third quarter economic growth is a surprise,” adding, “The economy could see positive annual growth this year.” The Bank of Korea announced the same day that real GDP in the third quarter grew 2.9 percent from the second quarter, the largest growth in seven years and six months.

In economics, a surprise refers to performance that exceeds initial expectations. Stock markets use the term “earnings surprise” when a company posts earnings that defy market expectations. Both public and private think tanks and the central bank had forecast until several months ago that third-quarter growth would be either zero or the one-percent level. So it is no exaggeration to say the economy has pulled off a surprise after contracting 5.1 percent quarter-on-quarter in the fourth quarter last year.

This surprising growth is mainly due to earnings surprises by domestic companies. Samsung Electronics posted record quarterly sales of 35.87 trillion won (30.3 billion U.S. dollars) and operating profit of 4.23 trillion won (3.57 billion dollars). Other Samsung affiliates such as Samsung Techwin and Samsung Electro-Mechanics also showed better-than-expected performances. The LG Group also did well with its three affiliates – LG Display, LG Chemicals and LG Household & Health Care – breaking records in sales, operating profit and net profit in the third quarter. LG Display posted 5.96 trillion won (5.03 billion dollars) in sales, 945 billion won (798 million dollars) in operating profit, and 568 billion won (4.8 million dollars) in net profit. Hyundai Motors reported record quarterly net profit of 979.2 billion won (827 million dollars) and Kia Motors 402 billion won (340 million dollars). POSCO was no exception. The country’s largest steelmaker posted operating profit of 1.018 trillion won (859.8 million dollars) over the same period. KT, Hyundai Heavy Industries and Hynix also saw better-than-expected earnings.

Many experts say, however, that a similar performance is highly unlikely in the fourth quarter. Domestic stocks, which rallied after the release of corporate earnings, have lost steam due to such a pessimistic view. Given corporate efforts that have led to the faster-than-expected recovery from the global economic crisis, however, earnings and growth could surprise yet again. More than a failure to see another surprise, the hope is that Korea in the fourth quarter will not suffer from an “earnings shock,” or a worse-than-expected performance.

Editorial Writer Kwon Sun-hwal (shkwon@donga.com)