South Korea Economy Grew 0.8%, as Initially Estimated

By William Sim

Sept. 5 (Bloomberg) -- South Korea's economy grew 0.8 percent in the second quarter from the previous three months, unchanged from an initial estimate, the central bank said.

Gross domestic product rose 4.8 percent from a year earlier, the bank said in Seoul. That's the weakest pace in more than a year and the same as the preliminary reading published July 25.

Household spending fell 0.2 percent last quarter, more than the first estimate of a 0.1 percent decline. Rising fuel costs and a weaker won are fanning the fastest inflation in almost 10 years, eroding the purchasing power of Korean consumers, who are burdened by record debt.

``Domestic demand will remain weak for a long time,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. ``The economy will likely slow gradually as exports cool in coming months amid a global economic slowdown.''

Net exports -- the difference between exports and imports -- powered half the growth in the second quarter, contributing 0.4 percentage point to the increase.

Domestic demand rose 0.2 percent from the previous quarter, less than the initial estimate of a 0.3 percent gain, today's report showed. Construction investment decreased 1 percent.

The Kospi index fell 1.7 percent to 1,401.94 at 9:24 a.m. in Seoul, in line with regional share-market declines. The won dropped 0.8 percent to 1,138.35 versus the dollar.

The government announced this week tax cuts of about $20 billion over the next five years.

``Tax cuts will lift household spending a bit and have a positive effect on economic growth to some extent,'' Jung Yung Taek, a statistics official at the central bank, told reporters.

Bank of Korea Governor Lee Seong Tae last month raised the benchmark interest rate to an eight-year high of 5.25 percent, saying inflation poses a greater threat than the cooling economy.

Yesterday, Lee said the bank will shift its focus to supporting economic growth if inflation moderates.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.