By William Sim
July 25 (Bloomberg) -- South Korea's economy expanded at the same pace in the second quarter as the first as export gains made up for cooling consumer spending.
The economy grew 0.8 percent from the previous quarter, the central bank said in Seoul today. From a year earlier, gross domestic product increased 4.8 percent, after a 5.8 percent gain in the first quarter.
Exports, which make up about half of the economy, may cool as the U.S. slowdown spreads to the emerging markets that have been buying South Korea's electronics and ships. At home, soaring fuel costs and a weaker won are driving the fastest inflation in almost 10 years, squeezing household incomes and company profits.
``The key uncertainty lying in front of the Korean economy is how sustainable will global demand be,'' said Oh Suk Tae, a Seoul-based economist at Citibank Korea Inc. ``Third-quarter economic growth, especially private consumption, will be affected by rising oil prices.''
Both measures matched the median estimates of economists surveyed by Bloomberg News. On July 2 the government trimmed its 2008 growth forecast to 4.7 percent from 6 percent. The economy grew 5 percent last year.
South Korea's benchmark Kopsi Index of stocks fell 1.1 percent, in line with other Asian markets, after a report showed U.S. home sales fell, adding to concern the slowdown in the world's biggest economy will persist, slowing demand for Asian exports. The Kospi has dropped 15 percent this year.
Asian Growth
The won traded at 1007.40 won versus the dollar at 9:45 a.m. from 1007.10 yesterday. The currency, which fell as much as 11.5 percent this year, is now down 7.5 percent for 2008.
South Korea is among the first Asian countries to report second-quarter gross domestic product figures.
China's economy grew at the slowest pace since 2005 in the second quarter from a year earlier, and Singapore's expanded at the slowest pace in five years by the same measure. From a year earlier, South Korea's growth was the slowest since the first quarter of 2007.
Net exports -- the difference between exports and imports -- powered more than half of the nation's growth, contributing 0.5 percentage point to the increase, down from 0.7 percent in the first quarter.
Spending by households, which are burdened with record debt, fell 0.1 percent, the first decline in four years. Construction investment dropped 0.6 percent. Investment in factories increased 1 percent.
Domestic Demand
Domestic demand, which includes private and corporate spending, rose 0.3 percent in the second quarter, the smallest gain in 3 1/2 years, the report showed.
Finance Minister Kang Man Soo said today the economy faces various difficulties, and that it may pick up in late 2009.
Signs of a slowdown have already been emerging. Factory output had the smallest gain in a half year in May and shipments overseas rose by the least in five months in June.
Exports may also slow as central banks across Asia raise interest rates to combat inflation, slowing economic growth and weakening demand for South Korean goods.
``Demand from emerging markets in Asia will cool because of monetary tightening in the region,'' said Shin Dong Suk, an economist at Samsung Securities Co. in Seoul.
LG Electronics Inc., Asia's second-largest mobile-phone maker, said on July 21 its revenue is poised to fall from the second quarter, when it had a record profit, as slowing global economic growth undermines demand for phones and televisions.
Emerging Markets
``There may be a contraction in emerging markets because of the economic slowdown, the spike in oil prices and inflation,'' Brian Sohn, head of investor relations at LG, said July 21.
Exporters may also come under pressure now that the government has dropped its support for a weaker won to help contain inflation. The Bank of Korea has possibly spent more than $12 billion since the end of May to boost the won's value, according to Jung Chan Ho, a currency dealer at Shinhan Bank in Seoul.
Still, exports to China and other emerging markets will help keep South Korea's $970 billion economy from cooling too much as domestic demand slows, the Bank of Korea said on July 1.
Real gross domestic income, a measure of purchasing power, rose 1.6 percent from the previous quarter, when it declined 2.1 percent.
Governor Lee Seong Tae and his policy board left borrowing costs at 5 percent this month and said economic growth may slow and inflation may stay high for a ``significant period of time.''
To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.
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