South Korea’s economy recorded its strongest growth in more than five years in the second quarter as increased government spending and record low interest rates insulated it from the global recession.
Asia’s fourth-largest economy expanded 2.3 percent quarter-on-quarter in the three months ended June 30, the Bank of Korea said yesterday in a report.
South Korea joins Singapore and China among the Asian nations that have released stronger growth figures in recent weeks — another sign the region is emerging from the world’s worst downturn in decades.
There are doubts, however, whether South Korea and Asia’s upturn will be sustained once the effects of government pump priming wear off.
Kang Chang-ku, an economist at the central bank, said the last time GDP grew more was in the fourth quarter of 2003 when it expanded 2.6 percent. The second quarter figures are preliminary and may be revised.
The expansion marked the second straight quarter of growth for Asia’s fourth-largest economy after a contraction in the final quarter of last year.
It eked out a 0.1 percent gain quarter-on-quarter in the first quarter after a contraction of 5.1 percent in the previous quarter.
But the result was not all good news and showed that some fragility remains.
For example, when compared with the same period last year, South Korea’s economy shrank 2.5 percent. That marked the third straight quarter of year-on-year shrinkage.
The last time that happened was in 1998, when GDP contracted from the previous year in all four quarters, said Kang, the central bank economist.
Kwon Goohoon, an economist at Goldman Sachs in Seoul, said in a note that South Korea’s growth was “driven by a good mix of strong fiscal stimulus, a weak KRW [South Korean won] and monetary easing.”
He expressed doubt, however, that such a strong performance would be repeated the rest of the year as fiscal stimulus wanes and credit expansion slows.