Korea's economic growth pegged at a measly 0.4%

On the way to a cyclical recovery.

According to DBS, during the quarterly economic review announced earlier this month, the Bank of Korea estimated growth of 0.4% QoQ sa in 4Q12.

This is translated into annualized growth of 1.6%, a modest rebound from 0.2% in 3Q. "We think the growth results could be slightly better, at 0.5-0.6% QoQ sa or 2% QoQ saar," DBS noted.

This however, will remain lower than the long term growth average of 4%, and miss the firm's original forecast of 3%.

It should be underscored that the economy has bottomed out in 4Q12 and is entering into a cyclical recovery. Exports and industrial production rose significantly in Oct-Nov12.

Here's more from DBS:

Despite the temporary pullback in Dec12 as a result of the unfavorable working day effects, exports will likely see a clear upturn in the coming months, in line with the recovery trend established elsewhere in the Asia region.

Consumption growth also picked up in 4Q, as evidenced by the faster rise in retail sales and the rebound in property transactions. The positive effects of rate cuts and fiscal stimulus measures adopted in 2H12 should gradually work through the domestic economy in 1H13.

The main drag to 4Q growth and the biggest disappointment to us came from investment. Equipment investment continued to contract, construction investment remained stagnant and business sentiment was sluggish.

Capacity utilization in the manufacturing sector has not fully recovered. In the construction sector, housing stocks have remained high compared to the long-term equilibrium levels.

In addition, the increase in political uncertainties ahead of December’s presidential election weighed on sentiment.

That said, we expect investment to improve ahead rather than deteriorating further, based on the assumption that the ongoing recovery in final demand (exports and consumption) will be sustained.

Meanwhile, the reelection of the NFP party in Dec12 has reduced concerns about a drastic change in government policies. The details of the new government’s policies will be available soon in February.