South Korea's economic growth accelerates to 2-year high in first quarter

SEOUL, South Korea – South Korea’s economy expanded at the fastest level in two years in the first quarter as capital expenditure and exports turned higher, the central bank said Thursday.

South Korea’s economy grew 0.9 per cent in the January-March period from three months prior, accelerating from 0.3 per cent growth in the fourth quarter, according to Bank of Korea’s preliminary reading.

Over a year earlier, Asia’s fourth-largest economy expanded 1.5 per cent, the same level as the previous quarter.

The bank said capital expenditure increased after declining for the previous three quarters. Exports also turned higher after the fourth quarter’s drop despite Japan’s aggressive monetary easing programs that drove down the value of yen, which gave a boost to Japanese firms that compete with South Korean exporters.

Growth in capital expenditure and exports helped mask a decline in private consumption, which turned lower for the first time in five quarters.

The better-than-expected reading comes after the central bank slightly revised down its forecast for South Korea’s economy to 2.6 per cent growth this year, from 2.8 per cent three months earlier, citing a downgrade in the global economic outlook. But Bank of Korea held its key interest rate steady for a sixth month in April after two rate cuts last year, saying that South Korea’s economy is on track to slow recovery and is not weak enough to justify an additional monetary easing.

South Korea’s government takes a more grim view on the economy. Last month, it said South Korea’s economy will expand 2.3 per cent this year, instead of 3 per cent it had predicted three months earlier, blaming the yen’s slide that dents exports and weak consumer sentiment.

The government proposed $15 billion extra budget to boost the economy and to create jobs, which is under the parliament’s review.