The South Korean economy grew at its fastest quarterly pace in two years in the first quarter as exports gained ground weathering the yen's weakness to the local currency, the central bank said Thursday.
Korea's gross domestic product (GDP), the broadest measure of economic performance, grew 0.9 percent in the first quarter from three months earlier, quickening from 0.3 percent on-quarter growth in the fourth quarter of 2012, according to an advance estimate by the Bank of Korea (BOK).
The first-quarter growth marked the fastest gain since the 1.3 percent growth in the first quarter of 2011. It also surpassed the BOK's earlier projection of 0.8 percent growth and topped market expectations.
From a year earlier, GDP grew 1.5 percent in the first quarter after advancing an identical 1.5 percent in the fourth quarter of last year.
The quarterly growth pace accelerated for the third straight quarter in the first quarter after the local economy posted no growth in the third quarter.
The better-than-expected growth data indicates that Korea's growth path remains intact despite the global slowdown as the central bank previously anticipated. The growth data could build a case for the BOK to freeze the key interest rate throughout the year, analysts said.
The BOK recently revised down its 2013 growth outlook to 2.6 percent from the previous 2.8 percent, but its outlook remained higher than the government's 2.3 percent growth estimate.
The yen's weakening trend, however, threatens to crimp Korea's exports as it makes prices of Korean products more expensive in overseas markets compared with those of Japanese rivals. The Korean won appreciated 4.7 percent to the yen on-quarter in the first quarter.
BOK Gov. Kim Choong-soo said Wednesday that as the yen's weakness is likely to persist for a long time, its negative impacts on Korea's exports will be felt down the road.
"The effects of the yen's weakness on Korea's exports will be felt in full swing from the second quarter. Sustainability of the growth momentum would hinge on a weaker yen and the global recovery," said Lee Sang-jae, an economist at Hyundai Securities Co.
But the government said that the first-quarter growth data should not be interpreted as signs of the economic recovery, saying that the quarterly growth remains less than 1 percent for the eighth straight quarter.
Finance Minister Hyun Oh-seok said Thursday that if there are no economic-boosting measures, the growth engine for the Korean economy will come to a standstill.
The BOK froze the key interest rate at 2.75 percent for the sixth straight month in April, resisting the government's pressure to lower the rate.
The government proposed an extra budget worth 17.3 trillion won ($15.5 billion) to spur growth while it is pushing to frontload more than 60 percent of fiscal spending in the first half of this year.
Exports, which account for around 50 percent of the GDP, gained 3.2 percent on-quarter in the January-March period after declining 1.1 percent in the fourth quarter, the BOK said.
Private spending contracted 0.3 percent on-quarter in the first quarter, compared with the 0.8 percent on-quarter gain in the preceding quarter.
Facility investment grew 3 percent last quarter after falling 1.8 percent in the fourth quarter and construction investment advanced 2.5 percent, a turnaround from a 1.2 percent decline in the previous quarter. (Yonhap News)