S. Korean economy grows 0.1 pct in Q1

(ATTN: UPDATES with central bank official's comment and details in paras 4-7, 14;
TRIMS throughout)
By Kim Soo-yeon
SEOUL, June 5 (Yonhap) -- The South Korean economy grew 0.1 percent on-quarter in
the January-March period on the government's fiscal spending and rate cuts, the
same pace as previously predicted, the central bank said Friday.
But from a year earlier, the country's gross domestic product (GDP) contracted
4.2 percent in the first quarter, compared with an earlier estimate of a 4.3
percent on-year decline, according to the Bank of Korea (BOK).
The country's GDP, the broadest measure of economic performance, shrank 5.1
percent in the final quarter of 2008, the worst performance in 11 years. But it
narrowly averted a recession, two straight quarters of contraction, by posting a
mild expansion in the first quarter.
"In the first quarter, the economy posted positive quarterly growth, led by the
government's fiscal spending and construction investment," Jung Yung-taek, head
of the BOK's national income statistics team, told reporters.
"Given the expected effect of an extra budget, it is unlikely that the economy
will suffer from additional deterioration down the road."
In April, parliament approved a record 28.4-trillion-won (US$22.8 billion) extra
budget aimed at generating jobs and boosting domestic demand. The government has
frontloaded more than 45 percent of its annual budget so far this year in a bid
to foster economic growth.
According to the BOK, without aggressive fiscal spending the country's GDP could
decline about 0.6 percent on-quarter and shrink around 5.4 percent on-year in the
first three months of this year.
Exports of goods, which account for about 60 percent of the local economy, fell
3.4 percent on-quarter in the first quarter, the same pace as earlier estimated.
Private spending, one of the main growth engines of the South Korean economy,
expanded 0.4 percent from three months earlier.
But facility investment tumbled 11.2 percent, sharper than an earlier estimate of
a 9.6 percent fall, reinforcing views that the real economy remains sluggish.
Construction investment increased 5.2 percent, less than an estimated 5.3 percent
expansion.
Meanwhile, the country's gross national income, a barometer reflecting the actual
purchasing power of the population, dipped 0.2 percent in the last quarter from
three months earlier, marking the third straight quarter of decline.
"The revised figures indicated that the Korean economy is recovering," said Go
You-sun, an economist at Daewoo Securities Co. "But data related to the real
economy like facility investment remained sluggish, showing a discrepancy with
improving sentiment."
The report comes amid rising cautious optimism that Asia's fourth-largest economy
may be bottoming out. Industrial output expanded month-on-month for the fourth
straight month in April. Business and consumer sentiment has climbed on hopes of
an economic recovery.
The government struck a cautious note, however, saying that the South Korean
economy may be recovering as a global downturn abates, but it remains in a slump
as domestic demand and exports are not showing signs of marked improvement.
Corporate investments remained weak amid cloudy economic outlooks.
"A meaningful recovery will come only when consumption and investment from the
private sector revive and employment rises," Jung said, adding that it is too
early to say whether the local economy is bottoming out due to lingering economic
uncertainty.
In May, the BOK froze its key interest rate at an all-time low of 2 percent for a
third straight month, saying that a sharp decline in economic activity has
markedly eased. It made six consecutive rate cuts totaling 3.25 percentage points
between October and February.
The BOK predicted that the Korean economy will contract 2.4 percent this year,
due to falling exports and sluggish domestic demand.
sooyeon@yna.co.kr
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