South Korea's Economy Grows 0.8%, Beats Forecasts

South Korea's economy grew slightly more than expected in the second quarter on robust exports, data showed on Friday, which analysts said cleared the central bank to hike interest rates next month to curb inflation.

Korea, Korean Flag
Korea, Korean Flag

But the gloomy outlook for domestic demand in Asia's fourth-largest economy means the Bank of Korea will likely refrain from tightening monetary policy too aggressively, economists said.

Gross domestic product expanded a seasonally adjusted 0.8 percent in the second quarter from the previous quarter, slightly above market expectations and the same pace of growth as in the January-March quarter, the Bank of Korea data showed.

"Policymakers will keep focusing more on prices and the Bank of Korea is likely to raise interest rates once, probably in the third quarter. But it would be difficult for the central bank to be too aggressive, given the slowing economy," said Kim Jae-eun, an economist at Hana Daetoo Securities.

The figures marked the 21st quarter of uninterrupted expansion.

Economists polled by Reuters had estimated the South Korean economy would rise 0.7 percent during the April-June period from the previous three months.

The Bank of Korea held the policy rate steady for an 11th consecutive month on July 10, but investors have priced in a rise in interest rates as early as next month after its governor emphasized its prime mission of tackling inflation.

It last raised the rate to 5.0 percent in August last year and plans to next review the rate on Aug. 7.

Private consumption, which generates slightly more than half of the annual GDP, marked the first decline in four years, falling by a seasonally adjusted 0.1 percent in the second quarter after a 0.4 percent rise in the first quarter.

Exports rose 3.7 percent, helping lift the manufacturing sector up 2.2 percent.

Over a year earlier, April-June GDP grew 4.8 percent, compared with market expectations in the Reuters poll for a 4.7 percent gain and following a 5.8 percent rise in the first quarter, the data showed.

Earlier this month, the Bank of Korea cut its economic growth forecast for this year to 4.6 percent, the slowest in three years, from 4.7 percent previously.