S. Korean economy grows 2.3 pct in Q2

(ATTN: RECASTS paras 2,6; UPDATES with central bank official's comment in paras 5,
10,11; TRIMS throughout)
By Kim Soo-yeon
SEOUL, July 24 (Yonhap) -- The South Korean economy grew at the fastest pace in
more than five years in the second quarter as economic stimulus packages helped
boost consumer spending and exports rose, the central bank said Friday.

But the Bank of Korea (BOK) remained cautious, noting that as the effects of
fiscal spending will likely abate down the road, future growth will depend on how
robust exports remain and how quickly the job market recovers.
The country's gross domestic product (GDP), the broadest measure of economic
performance, expanded 2.3 percent in the April-June period from three months
earlier, sharply up from a 0.1 percent gain in the first quarter, according to an
advance estimate by the BOK.
The second-quarter reading matched a BOK prediction made in early July and marked
the fastest growth since a 2.6 percent gain in the fourth quarter of 2003.
Compared with a year earlier, however, the economy shrank 2.5 percent, easing
from a 4.2 percent on-year contraction in the first quarter.
"Last quarter, private spending picked up as sales of cars increased due to tax
benefits and exports of petrochemical goods remained robust," Kim Myung-kee,
director general of the BOK's economic statistics division, told a press
conference. "The expansion of fiscal spending significantly contributed to the
second-quarter growth."
According to the BOK, fiscal spending boosted on-year growth by 1.9 percentage
points in the April-June period.
The government and the BOK have been scrambling to bolster the slumping economy
by implementing large scale fiscal spending and aggressively cutting the key
interest rate. In April, the parliament approved a 28.4 trillion won (US$22.7
billion) extra budget aimed at generating jobs and boosting domestic demand.
The second-quarter expansion is underpinning optimism that the Korean economy
might have passed its worst downturn in more than a decade and is an indication
of its resilience. Asia's fourth-largest economy averted a technical recession in
the first quarter after tumbling 5.1 percent during the last quarter of 2008.
But the government and the central bank have expressed caution about the pace of
recovery, saying the economic outlook still remains murky as rising oil prices
and a protracted slump in the global economy could serve as downside risks to
growth.
Kim echoed that view, saying it is too early to interpret the upbeat numbers as a
sign of sustainable economic recovery.
"(Recovery in) employment is vital for the private sector to rebound on its own
(without government support)," Kim said, adding that at present there does not
seem to be any quick improvement in the job market.
Exports, which account for about 60 percent of South Korea's GDP, jumped 14.7
percent on-quarter in the April-June period, after declining 3.4 percent in the
first quarter. The second-quarter figures marked the steepest growth since a 14.9
percent expansion in the fourth quarter of 2003.
Private spending, one of the main growth engines of the Korean economy, gained
3.3 percent, marking the fastest growth since a 3.4 percent advance in the first
quarter of 2002.
Despite the upbeat readings, analysts say the BOK is expected to freeze the key
rate throughout the year as a hasty shift to a tightening monetary stance would
hamper any nascent economic recovery.
BOK Gov. Lee Seong-tae said in early July that the central bank will maintain its
accommodative monetary policy for the time being.
The government has reiterated that it will stick to its "expansionary" economic
policy, and that it is premature to say that the economy is making a full
recovery.
The BOK slashed the rate by a total of 3.25 percentage points to a record low of
2 percent between October and February in an effort to boost the sagging economy.
sooyeon@yna.co.kr
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