South Korean Economy Grows Most in Almost Six Years

By Seyoon Kim

July 24 (Bloomberg) -- South Korea’s economy expanded at the fastest pace in almost six years last quarter as exports and household spending jumped.

Gross domestic product rose 2.3 percent from the first quarter, when the nation skirted a recession by growing 0.1 percent, the Bank of Korea said today in Seoul. That was better than the 2.2 percent growth estimated by economists.

Samsung Electronics Co. today joined exporters Hyundai Motor Co. and LG Electronics Inc. in reporting profit surged last quarter, helped by a weaker currency and demand fed by $2.2 trillion in stimulus worldwide. Consumer spending climbed 3.3 percent from the first quarter, the most in seven years, fueled by interest rates at a record-low 2 percent.

“Exports have improved more than expected while domestic demand got a big boost from the fiscal and monetary policy steps,” said Lee Sang Jae, economist at Hyundai Securities Co. in Seoul. “I expect Korea to remain on a recovery path” even after the boost from the stimulus measures wanes, he said.

The Kospi stock index rose 0.5 percent at 12:20 p.m. in Seoul, taking the year’s gains to 34 percent after a 41 percent drop in 2008. The won rose 0.2 percent to 1,246.45 per dollar.

Last quarter’s expansion was the fastest since the economy grew 2.6 percent in the last three months of 2003. Exports gained 14.7 percent, also the biggest advance in almost six years. From a year earlier, GDP shrank 2.5 percent.

China, Singapore

South Korea joins China and Singapore in leading a regional rebound, marking a turnaround for an economy whose currency tumbled 26 percent last year on concern companies would be unable to repay foreign debt.

President Lee Myung Bak’s approval rating plunged by more than half in the wake of the financial turmoil. To counter the crisis, in January he sacked his finance minister and created an economic war room in an underground bunker.

He also pumped money into the banking system, boosted fiscal spending by 67 trillion won ($54 billion) and set up funds to replenish banks’ capital. The central bank formed a dollar-swap agreement with the U.S. and cut interest rates.

“The economy got help from various stimulus measures and the second-quarter numbers show the steps worked,” said Kim Seung Hyun, head of research at Taurus Investment Securities Co. in Seoul. “A weaker currency helped the nation’s exporters gain competitiveness.”

Samsung’s Profit

Samsung Electronics, which alone accounts for 15 percent of the country’s exports, today reported net income rose 5.2 percent to 2.25 trillion won in the three months ended June, the biggest quarterly profit in more than two years.

Hyundai Motor, South Korea’s largest automaker, yesterday said net income climbed to an unprecedented 811.9 billion won. LG, the world’s third-largest maker of liquid-crystal-display televisions, also reported record quarterly profit this week.

The revival of demand is prompting companies to spend more. Corporate investment in factories and equipment climbed 8.4 percent, today’s report showed. Government spending gained 1 percent and construction investment advanced 0.4 percent.

The central bank pared the benchmark interest rate by 3.25 percentage points between October and February, the most aggressive easing in a decade.

The rate reductions helped to fuel a real-estate boom that Bank of Korea Governor Lee Seong Tae said this month he’s monitoring. The government will act to quell property-market speculation within “two to three weeks,” Land Minister Chung Jong Hwan said on July 22.

Ailing Job Market

“Growth in the second quarter was helped much by policy measures” including a sales-tax cut on auto purchases, Kim Myung Kee, director general of the central bank’s statistics department, told reporters in Seoul. “Domestic demand probably won’t be able to rise as fast as the second quarter in coming months unless the job market improves quickly.”

Not all indicators point to a solid recovery. The jobless rate rose to an eight-year high of 4 percent in June, and the impetus from the government’s stimulus will eventually fade.

“Second-quarter growth got a temporary boost from stimulus measures, but it’s hard to say whether that will continue to push growth,” said Chun Chong Woo, an economist at Samsung Securities Co. in Seoul. “The key to sustained economic growth in the second half will be whether consumers and companies increase spending.”

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net