Korean consumers in from the cold

IT IS not often these days that a fur coat is something to be cheered about. But in wintry South Korea, the more expensive the pelt, the better it has been for the struggling economy.

With taxes lifted from luxury goods in a government bid to get consumers back at the cash tills, fur on backs in Seoul is a sign that South Koreans have been shopping their nation away from the gloom of a recession that has enveloped many of the neighbours.

Asia's sick man for too long, the renewed ringing of the till has helped South Korea emerge as the unexpected star of the region. Investors were cheered last week by surprising news - South Korea had not just avoided a recession in the most recent quarter, it actually grew more then even the best estimates. The central Bank of Korea announced that South Korea's economy grew 1.8% in the third quarter. The reason? Robust consumer spending, the bank said.

'Private consumption was one of the key engines for growth this quarter,' said Chung Jung Ho, a director-general of Bank of Korea. 'But there's a limit to how much domestic demand can contribute to overall growth in the future.'

It was welcome news for Koreans, among the leading investors in Britain during the past decade. Sure, the growth number was a long way from the 9.2% posted in the same quarter last year, when Seoul was rebounding from the financial crisis. But that was off a low base, from when the Korean economy took a huge tumble after the 1997-98 financial-crisis. Massive corporate conglomerates, or chaebols, have since been struggling for survival and Korea's stop-start efforts to reform the economy have put it in the caveat emptor basket for investors. Not any more. Korean stocks are up 15% so far this year to be one of Asia's best equity performers.

The Government might be reluctant to institute the deeper reforms bodies like the International Monetary Fund have been calling for since the 1990s crisis. But its stop-gap efforts to pump-prime the economy away from recession seem to have done the trick - for the time being at least.

Private consumption in the third quarter grew by 3.4% from a year earlier. The government slashed taxes on luxury goods. More measures are expected. The question facing planners now is whether the momentum can be sustained.

South Korea sends 25% of its output to the US, where the lingering impact of the 11 September attacks is still to be determined. And South Koreans are expecting an election inside a year. The Kim Dae Jung administration has had a two-steps-forward-one-step-back approach to reform and analysts doubt whether even that one step will be maintained amid the pain of corporate collapse and unemployment.

Kim's approval rating is floundering between 25% and 30% - low enough, cynics say, for a few more tax breaks and some extra pump priming as the poll looms.