UPDATE 2-Firm S.Korea data puts the domestic back into GDP

Christine Kim and Choonsik Yoo
Friday, 25 Oct 2013 | 5:18 AM ET

* 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

* Rising won to test President Park on policy promises

(Recasts throughout with new comments, markets)

SEOUL, Oct 25 (Reuters) - South Korean gross domestic product data out on Friday underlined a broadening recovery in Asia's fourth-largest economy, as the driver of growth shifted from exports towards internal consumption.

South Korea grew a seasonally adjusted 1.1 percent in the third quarter from the second quarter, topping a median 1.0 percent gain tipped in a Reuters survey of 16 analysts. It held steady from a matching 1.1 percent rise in the second quarter, when GDP growth hit its highest since early 2011.

It was also the first time also in more than two years that quarterly growth was led by contributions from all the three domestic-demand categories of private consumption, construction spending and corporate investment in production equipment.

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.

Analysts said the data vindicated the government of President Park Geun-hye, who promised during her election campaign last year to shift policy away from keeping the won cheap to support exporters, to focus more on developing domestic industries and services.

"Supporting the development of domestically-orientated sectors will help Korea achieve sustainable growth and make the economy become more resilient to downturns in external demand over the medium term," said Ronald Man, economist at HSBC in Hong Kong.


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.

The central bank expects the economy to pick up to annual growth of 2.8 percent this year from 2.0 percent last year and go on to reach 3.8 percent next year.

Since taking office eight months ago for a single, five-year term, President Park has repeatedly said economic policy would be focused more on helping domestic service businesses to become more vibrant and profitable.

The upbeat economic outlook combined with the country's healthy external positions has been lifting the won -- prompting authorities to intervene for a second consecutive day on Friday to smooth the won's appreciation, traders said.

Finance Minister Hyun Oh-seok and Bank of Korea Governor Kim Choong-soo said separately this week the authorities were aiming to smooth the pace of the won's appreciation, supporting previous remarks by government officials that they would not try to reverse the currency's direction.

The won ended almost unchanged on Friday on suspected official intervention and as foreigners turned net sellers of local shares after nearly two months of uninterrupted buying. It gained 6.8 percent against the dollar in the third quarter, the most in three years.

(Additional reporting by Se Young Lee; Editing by Eric Meijer)