S. Korean economy grows 0.1 pct in Q1

(ATTN: RECASTS lead, para 4; UPDATES with remarks by central bank official in para 5)
By Kim Soo-yeon
SEOUL, April 24 (Yonhap) -- The South Korean economy grew 0.1 percent on-quarter
in the January-March period on the government's fiscal spending and a slower fall
in exports, the central bank said Friday, averting a much feared recession.

The first-quarter growth rate contrasts with a 5.1 percent quarterly fall in the
country's gross domestic product (GDP) for the final quarter of 2008 and is just
below a 0.2 percent gain forecast by the Bank of Korea (BOK) in early April.
The expansion comes as a relief to the South Korean economy, which had widely
been expected to slip into a recession, or two straight quarters of contraction,
buffeted by sinking exports and weak domestic demand.
From a year earlier, however, the economy shrank 4.3 percent, the worst
performance in nearly 11 years, which compares with a 3.4-percent annual decline
for the October-December period, the central bank said.
"The Korean economy is still on a downturn trend although a sharp decline in
economic activity eased considerably in the first quarter," Choi Chun-sin,
director general of the BOK's economic statistics division, told a press
conference. "It is too early to say that the economy might have hit bottom."
Exports, which account for about 60 percent of South Korea's GDP, fell 3.4
percent on-quarter in the three months ended March 31 after declining 12.6
percent in the fourth quarter of last year.
Private spending, one of the main growth engines of the Korean economy, gained
0.4 percent, compared with a 4.6 percent contraction in the preceding quarter.
Facility investment shed 9.6 percent, after falling 14.2 percent three months
earlier, and construction investment rose 5.3 percent, compared with a 3 percent
decline in the final quarter of last year.
"A fall in exports was not as sharp as had been anticipated last quarter and a
set of economic pump-priming measures positively affected investment and domestic
demand," said Kim Jae-eun, an economist at Hana Daetoo Securities Co.
"In the second half, the impact of stimulus packages is expected to be felt in
earnest. Given these readings, I think that the BOK will likely freeze its key
interest rates throughout this year."
The data comes as the government and the BOK have made efforts to bolster the
slumping economy by unveiling a string of economic stimulus packages and cutting
the key interest rate. In March, the government unveiled a record 28.9 trillion
won (US$21.5 billion) extra budget aimed at creating more jobs and boosting
weakening domestic demand.
Recently, some budding signs of economic improvement have increased, raising
prospects that a sharp fall in the Korean economy has eased. Industrial output
saw its decline moderate in February and South Korea's trade surplus reached a
record US$4.6 billion in March.
But Finance Minister Yoon Jeung-hyun remained cautious, saying that it is too
early to be optimistic about an economic recovery as negative factors coexist
alongside positive ones. The country's jobless rate rose to 4 percent in March
and 195,000 jobs were eliminated from payrolls, the highest since the Asian
financial meltdown.
The BOK predicted that the local economy will shrink 2.4 percent this year, the
worst performance in more than a decade. The economy may hit bottom in the second
or third quarter, but it is expected to recover very slowly due to uncertainty
about the global recession, it added.
The International Monetary Fund on Wednesday downgraded its 2010 growth forecast
for the Korean economy to 1.5 percent from an earlier prediction of 4.2 percent.
On April 9, the BOK froze its key rate at a record low of 2 percent for the
second straight month, saying that a sharp fall in economic activity has
moderated. It had made six consecutive rate cuts totaling 3.25 percentage points
into February.
sooyeon@yna.co.kr
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