South Korea’s economy expanded at the same pace as the central bank initially estimated in the first quarter as corporate investment and government spending rose amid Europe’s debt crisis.
Gross domestic product grew 0.9 percent over the three months through March from the previous quarter, unchanged from an April estimate, the Bank of Korea said in Seoul today. The economy expanded 2.8 percent from a year earlier, also matching the bank’s April estimate.
South Korea is bracing for falling demand for its automobiles and electronics as Europe’s debt crisis threatens to accelerate a global slowdown. The Bank of Korea is expected to keep interest rates unchanged for a 12th month tomorrow as Greece prepares for elections later this month and Spain calls for outside funds to prop up its banks.
“What’s happening in Greece and Spain threatens an economic recovery here,” Kim Nam Hyun, a Seoul-based fixed income analyst at Eugene Investment & Futures, said before today’s release. “All BOK board members will vote for no rate change this week, opting to wait and see how the euro-zone debt crisis unfolds.”
The won advanced 0.2 percent to close at 1,180.20 in Seoul on June 5, according to data compiled by Bloomberg. The benchmark Kospi (KOSPI) stock index gained 1.1 percent. The markets were closed yesterday for a holiday.
Corporate investment rose 10.3 percent in the first quarter from the previous quarter, while government spending rose 3.4 percent, today’s report showed. Goods exports increased 4.2 percent and private consumption rose 1 percent.
While South Korea’s gross domestic product expanded at the fastest pace in a year last quarter, the Bank of Korea reduced its 2012 growth forecast to 3.5 percent from 3.7 percent on April 16 amid Europe’s woes. Meanwhile, Asian economic data has been mixed.
Australia’s gross domestic product expanded 1.3 percent last quarter from the previous three months, a report showed yesterday, compared with the median 0.6 percent gain predicted by economists in a Bloomberg News survey. China’s economy expanded a less-than-expected 8.1 percent in the first quarter, the slowest pace in almost three years.
Finance Minister Bahk Jae Wan said on June 2 the government will allocate additional state funds to small firms and exporters within the next few months in an effort to boost economic growth. Finance ministry and central bank officials on June 5 held emergency meetings, where they pledged to ratchet up their monitoring of financial markets.
The country’s exports declined for the third consecutive month in May, while inflation dropped to a 21-month low of 2.5 percent. South Korean manufacturers’ confidence fell from a 9- month high in June, according to a central bank report on May 29.
Falling demand from Europe will hurt exports from countries such as South Korea in the short term, Tom Byrne, senior vice president at Moody’s Investors Service, said in Seoul on June 5. Still, nothing “fundamental” has changed since Moody’s raised its outlook on the country in April, he said.
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