South Korea's economy grows 4 percent in first quarter on exports, consumer spending

Apr 24, 2007 - South Korea's economy grew 4 percent in the first quarter of 2007 from the same period last year, the Bank of Korea said Wednesday, fueled by strength in exports, capital investment and consumer spending.

For the three months through March, gross domestic product in the world's 10th-largest economy expanded 0.9 percent from the previous quarter, the central bank said in a release.

Exports remained strong, gaining 11.2 percent from the year before, while capital spending by businesses rose 10.3 percent, the bank said. Construction gained 4.3 percent.

Private consumption, which is mostly consumer spending and which makes up more than half the economy, rose 4 percent, boosted by purchases of durable goods such as automobiles.

"Everything looks perfect, except for the high-tech sector," said Oh Suk-tae, economist for Citibank in Seoul. "Consumer spending is quite good."

South Korea's economy grew 5 percent in 2006, accelerating from a recently revised 4.2 percent in 2005, on growth in exports as well as capital and consumer spending.

But the economy slowed in the fourth quarter as companies pared inventories, a trend that carried over into this year.

Goldman Sachs economist Kim Sun-bae said a further drop in inventories knocked more than 1 percentage point off first-quarter growth, but added that the worst is probably over, with the economy poised to build on the strong pickup in consumption.

"We may be seeing the bottoming of the cycle," Kim wrote in a report.

The results largely matched expectations. The average forecast of nine economists surveyed by Dow Jones Newswires predicted growth of 3.9 percent from the year before and 0.9 percent on quarter.

The Bank of Korea does not release an annualized figure for the quarter-on-quarter growth number, a figure that Citibank's Oh calculated to be 3.6 percent.

The central bank, which is independent from the government, is forecasting growth of 4.4 percent for this year, while the Ministry of Finance and Economy is slightly more optimistic, seeing a 4.5 percent expansion.

Hong Sun-young, in charge of macro-economic issues at the private Samsung Economic Research Institute, said that while exports were strong, consumer spending has room to improve.

He said South Koreans remain prone to saving as the society ages and as high levels of spending on education leave little left over for other things.

Hong added that reduced tensions with neighboring North Korea over its nuclear program and the conclusion earlier this month of a free trade agreement between South Korea and the United States are expected to boost consumer confidence.

"I think it will lead to (an) increase in consumer spending in the latter half of the year," he said.