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South Korea Economy Expands At Fastest Pace In 2 Yrs

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South Korea's economy expanded at the fastest pace in two years in the first quarter of 2013, despite a continued slide in Japanese yen hurting the country's export sector, advance estimates from Bank of Korea showed Thursday.

The seasonally adjusted gross domestic product rose 0.9 percent quarter-on-quarter in the first quarter, accelerating from a 0.3 percent gain in the fourth quarter of 2012. This beat expectations for a 0.7 percent expansion and marked the fastest growth rate since the first quarter of 2011, when GDP was up 1.3 percent.

Government stepped up spending in the first quarter. As a result, public final consumption expenditure rebounded, growing 1.3 percent from the previous quarter. Investment also recovered, rising 2.9 percent.

Exports of goods and services grew 3.2 percent quarter-on-quarter, led by increased shipments of petrochemical products. This followed a 1.1 percent fall in the fourth quarter. Imports gained 2.5 percent on the back of higher domestic demand for electrical machine and petrochemical products.

On the other hand, domestic private consumption decreased 0.3 percent after a 0.8 percent gain in the fourth quarter.

On the production side, manufacturing grew 1.4 percent quarter-on-quarter in line with increased production of petrochemical products and ships. Services and construction output also improved during the period.

Year-on-year, the overall GDP expanded 1.5 percent, maintaining the momentum in the fourth quarter. This was slightly higher than the expected 1.4 percent growth.

Last week, the government led by President Park Geun-hye unveiled a KRW 17.3 trillion extra budget to revive the economy and to support exporters reeling under a sliding yen. The package is the largest since the KRW 28.4 trillion-stimulus plan unveiled in 2009 to lift the economy out of the Global Financial Crisis.

Bank of Korea Governor Kim Choong-soo said Wednesday the weakness in the yen has just started off and would continue for a long-term.Yen's downtrend is more likely to hit electronics, automobile and steel makers, Kim said.

Unlike most major Asian economies, South Korea is heavily reliant on overseas markets to drive growth. The recent weakening in the yen due to massive stimulus announced by the Bank of Japan, is hurting South Korean exports and analysts believe it has the potential to serve as a drag on the economy.

Despite mounting pressure to ease monetary policy, the central bank maintained its key interest rate at 2.75 percent for the sixth consecutive month in April. Earlier this month, the central bank cut its 2013 GDP outlook to 2.6 percent from the 2.8 percent projected in January. Growth is seen at 3.8 percent in 2014.

In March, the Finance Ministry lowered its growth forecast for this year to 2.3 percent from 3 percent projected earlier. South Korea's economic growth plunged to a three-year low in 2012 with the gross domestic product growing by just 2 percent.

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