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UPDATE 1-S.Korea Q3 growth tops forecasts, recovery seen intact

Christine Kim
Thursday, 24 Oct 2013 | 7:45 PM ET

(Adds quotes, details)

* Q3 GDP +1.1 pct q/q (+1.0 pct forecast, +1.1 pct in Q2

* Q3 GDP +3.3 pct y/y (+3.2 pct forecast, +2.3 pct in Q2

* Fiscal spending may fall, but impact seen as short-lived

* Rising won to test President Park on policy promises

SEOUL, Oct 25 (Reuters) - South Korea's economy grew 1.1 percent in the third quarter from the previous three-month period led by private consumption and construction investment, the central bank estimated on Friday, just ahead of the market's consensus forecast.

The seasonally adjusted reading compared with a median 1.0 percent rise tipped in a Reuters survey of 16 analysts and matched a 1.1 percent gain set in the April-June quarter, when Asia's fourth-largest economy grew the most in over two years.

The quarterly growth was the strongest since a 1.3 percent expansion in the first quarter of 2011.

Private consumption grew a seasonally adjusted 1.1 percent on a quarterly basis in the July-September period, government spending edged up 0.1 percent and capital investment gained 1.2 percent, the Bank of Korea's official estimates showed.

From a year earlier, gross domestic product (GDP) expanded by 3.3 percent in the third quarter, compared to the median 3.2 percent growth tipped in the Reuters poll and a 2.3 percent annual gain posted in the second quarter.

It was the quickest annual growth seen since a 3.4 percent gain posted in the fourth quarter of 2011.

"It's clear that the Korean economy is now on a recovery path, and I expect the sequential GDP growth rate to remain around 1 percent going forward," said Lee Chul-hee, chief economist at Tong Yang Securities in Seoul.

Despite Friday's positive numbers, prospects for the current quarter look cloudy as poor tax revenue on a slower-than-expected recovery is expected to result in smaller government spending for the rest of the year at a time of still depressed global demand.

The government has said this year's tax revenue would likely miss the target by up to 8 trillion won ($7.5 billion), about 0.7 percent of annual GDP, putting President Park Geun-hye's administration under pressure as it aims to achieve a balanced budget in her five-year term ending 2018.

But the fiscal drag will likely only be short-lived. The country begins a new fiscal year on Jan. 1 and the central bank has predicted a pick-up in economic growth to 3.8 percent next year from a projected 2.8 percent rise this year.

The government is also dealing with a rise in the won towards levels last seen before the start of the 2008 global financial crisis, as the upbeat growth outlook and the country's strong external standings have spurred fund inflows.

Park has promised to shift a longstanding policy stance skewed toward supporting mostly big export firms, which many analysts have said suggests her government may no longer pursue a past practice of resisting the won's appreciation.

The firmer won -- up 1.3 percent this month against the dollar following a 6.8 percent rise in the third quarter, the most in three years -- would hurt competitiveness of exporters in overseas markets but help consumers and import industries. ($1 = 1060.8500 Korean won)

(Additional reporting by Se Young Lee; Editing by Choonsik Yoo and Richard Pullin)