South Korea's growth improves on better consumption

SEOUL, South Korea – South Korea’s economic growth improved in the second quarter of the year, helped by stronger private spending and housing construction.

Bank of Korea said Tuesday that Asia’s fourth-largest economy expanded at an annual pace of 3.2 per cent during the April-June period, the fastest clip in seven quarters.

On a quarterly basis, South Korea’s economy grew 0.7 per cent, a pace below 1 per cent for a third straight quarter.

Sales of clothes and durable goods helped drive private consumption. Construction spending was robust thanks to an increase in new houses.

But the improvement may be “as good as it gets” for now, said Krystal Tan, Asia economist for Capital Economics.

Restructuring of South Korea’s shipping and shipbuilding sectors will likely involve major job cuts that will hit consumer demand, while China is increasing its own output of products it used to import from South Korea. Sales tax cuts on purchases of passenger cars expired at the end of June, she said in a research note.

Bank of Korea trimmed its benchmark interest rate last month to a record low of 1.25 per cent, the first rate cut in one year. It downgraded its growth forecast on South Korea, citing increased global uncertainties.