South Korea’s economic growth fell to a two-year low in the second quarter as exports and capital expenditures shrank due to a slowdown in its largest trading partner, China, and debt-crippled Europe.
The Bank of Korea said yesterday in its preliminary estimate that South Korea’s economy expanded 2.4 percent over a year earlier in the three months ending last month, the lowest growth since the third quarter of 2009. The second-quarter GDP was just 0.4 percent higher from the previous three months, when the economy expanded 0.9 percent.
Asia’s fourth-largest economy was widely expected to report weak growth for the April-to-June period, as the central bank unexpectedly cut its key policy rate by a quarter of a percentage point earlier this month, its first rate cut in more than three years.
The surprise rate cut was seen as a sign that South Korea’s export-driven economy will face heightened external challenges down the road. Europe appears to be far from resolving its debt crisis and the world’s major economies, including key South Korean trading partners China and the US, feel the pinch of the Europe’s woes.
In the April-to-June period, South Korea’s capital expenditures and exports contracted from the previous quarter while growth of domestic consumption weakened.
Capital spending shrank 6.4 percent from the first quarter because of weak investments in the telecommunications sector. Exports of goods and services inched down 0.6 percent as demand for petroleum and steel products declined.
Automobile demand contributed to a 0.5 percent rise in domestic consumption, narrowly avoiding staying flat.
Yesterday, the country’s largest carmaker Hyundai Motor said its second quarter net profit rose 10.4 percent from a year earlier to 2.55 trillion won (US$2.2 billion), driven by demand for its vehicles in overseas markets. Second-quarter revenue grew 9.2 percent to 21.94 trillion won, while its operating profit was 18 percent higher over a year earlier at 2.5 trillion won, the company said.
The Bank of Korea forecast the economy would grow just 3 percent this year, slower than its previously forecast 3.5 percent. An increase in government spending during the second half of this year is expected to contribute 0.2 percentage points, helping South Korea narrowly avoid 2 percent level growth.
“The 3 percent annual growth can be achieved if South Korea’s economy expands 3.3 percent during the second half of this year, higher than the first half of this year,” Kim Young-beom, a director at the central bank, told reporters.
Most market analysts expect the central bank to further lower borrowing costs before the December presidential election to ease household burdens and boost consumption, as South Korea has to increasingly look internally to sustain growth.