Even as the South Korean economy struggled through 2012, there was one bright spot — K-Pop sensation Psy's viral music video "Gangnam Style" — that helped bring a record number of tourists to the country boosting tourism revenues to a new high.
According to a report from HSBC, if the momentum in tourism continues it could support the country's economic recovery in 2013. Ronald Man, an economist at HSBC, told CNBC that he expects the tourism sector to boost employment in 2013.
"For every extra job created directly related to tourism — it generates 1.6 jobs indirectly, for example at restaurants or hotels," Man said. "It should support Korea's labor market and put a floor under domestic demand while export growth gradually recovers."
On Thursday, data from Asia's fourth-largest economy showed gross domestic product (GDP) picked up slightly in the final quarter of 2012 — growing a seasonally adjusted 0.4 percent on a quarterly basis, a bump up from the meager 0.1 percent rise in the September quarter which was the slowest growth in over three years.
HSBC estimates that the tourism industry contributed about 5.4 percent to South Korea's GDP in 2012, which is over twice the value of its agricultural output.
Tourism revenues hit a record $13.1 billion in the first 11 months of 2012, and more than 10 million people visited South Korea during that period for the first time in a year, according to the World Travel Tourism Council (WTTC).
A large part of the credit for this boom in tourism can go to "Gangnam Style."
"In the second half of the year, while global trade surprised on the downside and dragged down world growth, many danced happily to Psy's viral music video 'Gangnam Style.' A key beneficiary of this rising global interest in Korean culture is the country's tourism industry," HSBC wrote in a report published earlier this week.
Man says a meaningful recovery in China would benefit South Korean tourism as China is the country's second largest source of tourists — accounting for roughly a quarter of all the total visitors last year, a sharp increase from just 10 percent a decade ago.
Exports to Drive Growth
While tourism has been booming in South Korea, exports — the staple of the economy, which is showing recent signs of revival — lagged for the better part of last year on waning global demand. For example, South Korean exports fell 1.3 percent to $548.2 billion in 2012, undoing a 19 percent rise in 2011 and marking its first decline since 2009, according to South Korea's Ministry of Knowledge Economy.
Despite the sector's dismal performance in 2012, economists say exports will recover due to improving global economic conditions, particularly in China, and drive the economy to over 3 percent growth this year.
"We'll still see the export revival continuing in first and second quarters and this will be continuing to be led by electronics," Wai Ho Leong, senior regional economist at Barclays Capital said. "I'm looking at exports to recover 5-7.5 percent in 2013."
Matthew Circosta, economist at Moody's Analytics backed that sentiment by adding that South Korean exporters are going to "enjoy the fruits" of a pickup in demand for handheld devices like smartphones and tablets.
According to Circosta, the "Gangnam Style" effect will be felt on sectors other than tourism, as Psy's success has made people more upbeat about Korea.
"It's certainly a boost for exports and wider economy and the retail sector," Circosta said. "So it's going to boost employment and the bottom lines of a lot of retail companies in Korea."
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