The Korea Herald


S. Korean economy grows 0.8 pct on-quarter in Q2

By 박한나

Published : July 27, 2011 - 10:15

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The South Korean economy grew at the slowest pace in six months in the second quarter as export gains sharply eased amid global economic uncertainty, the central bank said Wednesday.

Asia's fourth-largest economy grew 0.8 percent in the April-June period, down from a 1.3 percent on-quarter expansion tallied in the first quarter, according to an advance estimate of the Bank of Korea (BOK). The country's gross domestic product (GDP), the broadest measure of economic performance, rose 3.4 percent last quarter from a year ago, the slowest in about 2 years.

The second-quarter growth was lower than the 0.9 percent expansion predicted by the central bank on July 15. The quarterly growth rate marked the slowest since a 0.5 percent gain in the final quarter of last year.

The central bank said the quarterly growth bottomed out in the second quarter and is likely to pick up to 1.5 percent in both the third and fourth quarters, indicating that the Korean economy has stayed on a robust recovery track.

"Exports of tech products remained weak last quarter mainly because prices of flat panel and chips have not yet recovered," Kim Young-bae, director general of the BOK's economic statistics division, said at a press conference.

"The pace of overseas shipments slowed down, but as the level of exports remained sound overall, it would be hard to say that exports stay weak."

Kim said that construction investment will likely post positive growth in the second half and exports would steadily keep growing, adding that the BOK's 4.3 percent growth forecast for this year is valid.

The data came as South Korea is facing heightened economic uncertainty like the eurozone debt crisis and stalled U.S. debt talks while inflationary pressure is building up.

Analysts said the second-quarter growth slowed down mainly because external uncertainty increased and high inflation eroded domestic demand.

The growth data lent support to the view that the BOK's tightening cycle will be gradual in order not to hurt the growth momentum. More analysts penciled in one or two more rate hikes within this year.

The BOK froze the key rate at 3.25 percent in July, following a rate increase in June, as external risks increased despite concerns about high inflation. The bank has raised the borrowing costs from a record low of 2 percent since last July.

"The second-quarter number was lower than expected as export gains cooled. In the third quarter, the growth rate will be higher than the second-quarter one, but the pace is not likely to be steep, given external uncertainty," said Park Sang-hyun, a chief economist at Hi Investment & Securities Co.

Park said even with eased growth, the central bank is forecast to raise the key rate by a quarter percentage point in August as he expects that consumer inflation is estimated to have grown 4.6 percent.

South Korea's inflation topped the upper limit of the BOK's 2-4 percent inflation target band for the sixth straight month in June.

The BOK revised up its 2011 inflation projection to 4 percent from an earlier estimate of 3.9 percent.

The government is sparing no efforts to bring inflation under control by unveiling a set of anti-inflationary steps and clamping down on price rigging. Sustained economic growth and hikes in public utility charges would put upward pressure on inflation in the second half.

According to the central bank, exports, which account for about 50 percent of South Korea's GDP, gained 1.8 percent on-quarter in the second quarter after expanding 3.3 percent three months earlier.

Private spending, one of the main growth engines of the Korean economy, expanded 1 percent, quickening from a 0.4 percent gain in the preceding quarter.

Facility investment grew 4 percent after contracting 1.1 percent in the preceding quarter and construction investment fell

0.4 percent after declining 6.7 percent in the first quarter.

The BOK said high oil prices caused the country's trade terms to deteriorate last quarter, hurting Koreans' purchasing power.

Gross domestic income (GDI), a gauge of measuring actual purchasing power of the population, shed 0.1 percent after contracting 0.3 percent in the first quarter. (Yonhap News)