SEOUL, South Korea (AP) — South Korea's economic growth slowed in the second quarter as weaker exports, manufacturing and services offset stronger consumer spending and rebounds in capital outlays and construction.
Gross domestic product expanded 0.8 percent in the three months ended June 30, the Bank of Korea announced Wednesday, slightly below its own forecast of 0.9 percent. The economy had grown 1.3 percent in the first quarter.
The latest figure comes after the central bank earlier this month cut its outlook for economic growth this year to 4.3 percent from 4.5 percent amid global uncertainties including debt problems in Europe and the likelihood of a slower recovery in the United States — both major South Korean trade partners.
Despite the weakness, South Korea, Asia's fourth largest economy, still kept up its steady recovery from the global financial crisis and has now grown for 10 straight quarters after contracting in late 2008.
Growth rates for exports, manufacturing and services all slowed in the second quarter. Bright spots included consumer spending, which more than doubled, while capital spending and construction both grew after contracting during the first three months of the year.
The slowdown in growth comes as the Bank of Korea has been raising interest rates in a bid to snuff out rising inflation. South Korea's consumer price index has been above 4 percent for six straight months through June, when it accelerated to 4.4 percent from the year before amid more expensive food and transportation costs. July inflation figures have yet to be announced.
Kwon Young-sun, an economist at Nomura International in Hong Kong, said that South Korea faces further headwinds in the form of export sluggishness as Japanese rivals recover from the March earthquake and tsunami. Households will also face pressure in terms of weak incomes, high debt levels and inflation.
"We expect the growth momentum will continue to weaken in the second half," said Kwon, who sees the economy expanding just 3.5 percent this year, well below the central bank's forecast. South Korea's economy expanded 6.2 percent last year.
The BOK earlier this month raised its inflation forecast to 4 percent from its previous expectation of 3.9 percent.
The central bank also said Tuesday that GDP grew 3.4 percent in the second quarter from the same period last year. It had expanded 4.2 percent in the first quarter.
The second-quarter figures are preliminary and may be revised.
South Korean financial markets closed little changed after the release of the growth figures. The benchmark stock index gained 0.3 percent to 2,174.31. The South Korean won, meanwhile, rose marginally to finish at 1,050 to the dollar.
South Korea's GDP figures came one day after Britain, a fellow Group of 20 economy, managed growth of just 0.2 percent in the second quarter. The result was weighed down by disruptions caused by April's royal wedding, the aftermath of Japan's disasters and record high temperatures in April.
- Gross domestic product
- consumer spending
- the Bank of Korea
- global financial crisis
- interest rates