S. Korea's economic growth hits over 2-year high in Q2

By Kim Soo-yeon

SEOUL, Sept. 5 (Yonhap) -- The South Korean economy grew at the fastest pace in over two years in the second quarter, confirming earlier expectations, due to increased fiscal spending, the central bank said Thursday.

Korea's gross domestic product (GDP), the broadest measure of economic performance, expanded 1.1 percent in the April-June period from three months earlier, quickening from a 0.8 percent on-quarter gain in the first quarter, according to the Bank of Korea (BOK).

The data confirmed that the second-quarter data marked the fastest quarterly growth since the 1.3 percent growth in the first quarter of 2011.

Korea's growth rate accelerated for the third straight quarter in the second quarter after posting no growth in the third quarter of last year. The on-year growth reached 2.3 percent last quarter, the same pace as earlier forecast.

The growth data is cementing the market's view that Asia's fourth-largest economy is on a modest recovery track, aided by fiscal and monetary stimulus.

"The third-quarter growth may be slower than the second-quarter numbers, but the growth will likely accelerate in the fourth quarter on improving exports," said Lee Sang-jae, an economist at Hyundai Securities Co. "I think that a rate hike may come later next year as the growth would expand."

The BOK froze the key interest rate at 2.5 percent for the third straight month in August after making the first rate cut in seven months in May.

The data come as some emerging markets, including India and Indonesia, are suffering from foreign capital flights and currency depreciation, sparked by a possible tapering of U.S. monetary stimulus.

South Korea is differentiating itself from such troubled emerging markets as its economic fundamentals remained sound on the current account surplus run and the accumulation of foreign exchange reserves.

Exports, which account for about 50 percent of the economy, grew 1.8 percent in the second quarter, better than the previous projection of a 1.5 percent growth.

Private spending rose 0.7 percent on-quarter last quarter, faster than an earlier estimate of 0.6 percent.

Government spending grew 2.4 percent in the second quarter, the same pace as previously forecast, but the growth picked up from a 1.2 percent on-quarter gain.

Facility investment declined 0.2 percent on-quarter in the second quarter, smaller than a previous estimate of a 0.7 percent contraction. Construction investment grew 3.4 percent, compared with an earlier estimate of 3.3 percent growth.

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