South Korea’s economy grew at the fastest pace in a year on a quarterly basis in the first quarter, thanks partly to strong industrial output, the central bank said yesterday.
A rise in demand and strong government spending also helped offset softness in the construction and agricultural sectors.
GDP rose 0.9 percent in the first quarter compared with the October-to-December quarter, the highest quarter-on-quarter rise since the 1.3 percent expansion in the first quarter last year.
Household consumption, government spending and capital investment all recorded growth, after posting quarterly losses in the last quarter last year.
Year-on-year GDP expanded 2.8 percent, the slowest on-year rate in two-and-a-half years, and policymakers in the export-dominated economy are braced for a possible continued slowdown in European demand.
Last week the central bank cut its growth forecast for this year to 3.5 percent from 3.7 percent, citing a potential global slowdown, including waning shipments to debt-hit Europe.
The Ministry of Finance has said it would heavily front-load this year’s budget spending in the first half of the year.
HSBC Global Research said yesterday’s figure reflects stabilizing business conditions and a strong government stimulus package, but it said household consumption must rise for growth to be sustained, especially as public spending eases in the second half.
“For now, growth is stabilizing and the strong sequential uptick adds further support to our view that the worst may be over in Korea,” it said in a commentary.
“External risks remain high, but assuming no severe shocks in global economic conditions, Korea remains on track for a gradual recovery in 2012,” it added.
Meanwhile, a rapidly aging population and a widening income gap pose long-term challenges to South Korea despite its decade of strong growth, the OECD said yesterday.
Asia’s fourth biggest economy is performing well, but must prepare for challenges that also include the cost of any reunification with North Korea, the Organisation for Economic Cooperation and Development said in a survey.
The organization forecast South Korea’s economic growth at about 3.5 percent this year and said the fiscal position is strong.
However, it stressed the need to boost the workforce as the working-age population starts falling from 2017 in a country with one of the world’s lowest birth rates.