S. Korea Revises Up Q2 Economic Growth

Sep 3, 2007 - The South Korean second quarter economic growth underwent upward revision, the latest official data indicated Monday. The economy expanded at its fastest pace in three and a half years in the second quarter, driven by robust exports as well as manufacturing and service sector growth.

The Bank of Korea revised up the sequential economic growth for the second quarter to 1.8% from the 1.7% initially estimated. The GDP growth accelerated from the 0.9% seen in the first quarter.

The real GDP improved 5.0% annually, revised up from the 4.9% estimate released on July 25. The economy expanded 4.0% in the first quarter and the fourth quarter of 2006. The central bank retained its GDP growth forecast at 4.5% for the whole year of 2007.

The manufacturing sector advanced 3.6% sequentially, reversing a 0.9% fall recorded in the first quarter. The growth was driven by the strength in semiconductors, industrial machinery, ships and automobile manufacturing.

Meanwhile, service sector growth climbed at a rate of 1.3% on account of strong growth in financial intermediation. The construction sector dropped 1.8% as both building construction and engineering declined from the prior quarter. Agriculture, forestry and fishing sector growth eased to 0.7% from the 1.8% growth in the first quarter.

Private consumption growth slowed to 0.8% from the 1.5% increase logged in the prior quarter. The central bank noted that the decline in expenditure on durables was partially offset by a gradual growth in non-durable spending. Facilities investment grew 3.4% from the previous quarter.

Exports of goods moved up 5.2% on higher exports of semi-conductors, industrial machinery and shipbuilding. This compares to a growth rate of 2.7% in the first quarter. The contribution of net exports to GDP growth was 0.3 percentage point, in contrast to a negative contribution of 0.8 percentage point in the prior quarter. On the other hand, contribution of domestic demand to GDP growth dipped to 0.9 percentage points from the 1.3 percentage points recorded in the prior quarter.

The real Gross National Income - GNI increased 2.2%, as net factor income from the rest of the world turned to rise. Annual GNI growth came in at 4.7%.

Separately, a government report showed that exports grew weaker than expected in August. Exports advanced 14.4% annually in August, while imports climbed 9.8%. Economists were looking for an annual growth of 14.7% in exports. Exports amounted to 31.2 billion US dollars and imports totaled 29.7 billion US dollars, resulting in a trade surplus of 1.5 billion US dollars. Exports to China increased 12.9% and shipments to the U.S. rose 3.3%.

Elsewhere, the National Statistical Office announced that the CPI annual inflation eased to 2.0% in August from a 2.5% rise seen in the prior month. The number came in weaker than the expected rise of 2.3%. The core inflation, excluding volatile items, remained at 2.3% annually in August. On a monthly basis, consumer prices were up 0.1%.

Meanwhile, the central bank is expected to hold key interest rate at 5.0% on its policy board meeting on September 7. In August, the Monetary Policy Committee of the Bank of Korea decided to raise the call rate target by 25 basis points to a six-year high of 5.0%. The Committee also raised the interest rates on both the Bank of Korea's Liquidity Adjustment Loans and Aggregate Credit Ceiling Loans by 25 basis points to 4.75% and 3.25%, respectively.