S. Korean economy grows 2.9 pct in Q3

(ATTN: UPDATES with more details and remarks by economists in paras 10-12)
By Kim Soo-yeon
SEOUL, Oct. 26 (Yonhap) -- The South Korean economy grew at the fastest pace in
more than seven years in the third quarter on the back of improving consumer
spending and facility investment, the central bank said Monday.
The country's gross domestic product (GDP), the broadest measure of economic
performance, expanded 2.9 percent in the July-September period from three months
earlier, up from a 2.6 percent gain in the second quarter, according to an
advance estimate by the Bank of Korea (BOK).
The third-quarter reading marked the fastest growth since a 3.8 percent advance
in the first quarter of 2002. Compared with a year earlier, the economy expanded
0.6 percent last quarter, marking the first on-year growth in four quarters.
"There was improvement in inventory investment that contributed to both consumer
spending and facility investment continuing their upward gains," the BOK said in
a statement.
Asia's fourth-largest economy is fast emerging from its worst downturn in more
than a decade, helped by aggressive fiscal spending and rate cuts. Hit by the
global economic recession, the Korean economy tumbled 5.1 percent on-quarter in
the last three months of 2008 before rising 0.1 percent in the January-March
period.
The data is underpinning optimism that the Korean economy is recovering at a
faster-than-expected pace.
Exports, which account for about 50 percent of South Korea's GDP, rose 5.1
percent on-quarter in the cited three month period that ended Sept. 30, after
jumping 14.7 percent in the second quarter.
Private spending, one of the main growth engines of the Korean economy, increased
1.4 percent, compared with a 3.6 percent gain in the preceding quarter.
Facility investment climbed 8.9 percent after rising 10.1 percent in the second
quarter, while construction investment declined 2.1 percent, compared with a 1.7
percent expansion three months earlier.
But government spending dipped 0.8 percent last quarter, the first decline since
the fourth quarter of 2005 when it fell 1.1 percent.
Economists say that despite upbeat economic readings, the central bank is likely
to freeze the key rate throughout this year, given lingering uncertainty about
the economic outlook.
"The third-quarter economic performance results came as a surprise. But the
growth seemed to be aided by inventory effects," said Goh You-sun, an economist
at Daewoo Securities Co. "The BOK may move to hike the key rate only in the new
year."
BOK Gov. Lee Seong-tae said on Oct. 15 that the local economy is expected to
contract by less than 1 percent this year, better than the bank's previous
estimate of a 1.6 percent decline. Lee downplayed the possibility of the country
experiencing a "double-dip" in which a second downturn follows a short-lived
recovery after an initial slowdown.
The BOK slashed the rate by a total of 3.25 percentage points to a record low of
2 percent between October 2008 and February in an effort to boost the sagging
economy.
sooyeon@yna.co.kr
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