GDP growth is fastest in 5 years, up 2.3%

Korea s second-quarter economy grew at the fastest pace in more than five years, spurred by massive government stimulus plans and robust exports. The performance comes on top of a small gain in the first quarter that narrowly averted a recession.

The second-quarter gross domestic product rose by 2.3 percent from the first quarter, when it inched up 0.1 percent compared to the previous quarter. The expansion was the largest since the fourth quarter of 2003, when GDP jumped 2.6 percent from the previous quarter. Although quarter-to-quarter growth was resounding, it was still not enough to erase a year-to-year decline of 2.5 percent. However, even the year-to-year figure was a significant improvement over a 4.2 percent retraction seen in the first quarter, according to data from the Bank of Korea yesterday.

However, central bank officials cautioned that it remains uncertain whether the latest data indicate the nation s economic recovery is in full swing. The second-quarter growth is largely fueled by the domestic stimulus plan and exports to China, said Kim Myung-ki, the central bank s economic statistical office director. But we may face impact from export swings and the limits of budget spending.

Meanwhile, the Kospi stock index reached 1,502.59 yesterday, the highest close since Aug. 21, 2008.

For the quarter, the manufacturing sector showed crisp growth of 8.2 percent from the first quarter, buoyed by handsome performances from electronics and petrochemical companies, while exports rose by nearly 15 percent. On-year, manufacturing shrank 7.9 percent, far better than the first quarter s 13.6 percent contraction.

Private consumption also fared well, rising 3.3 percent from the previous quarter, though its on-year performance was minus 1.1 percent. That decline compared to a 4.4-percent drop in the first quarter.

The Korean government s tax breaks for new car buyers, aimed at spurring consumer spending, expired at the end of June, prompting many Koreans to rush to buy new cars last month. Local credit card spending in June rose in the double digits from a year earlier for the first time in eight months, reaching 27.1 trillion won ($21.4 billion), up 12.4 percent from June 2008.

Central bank officials, however, expressed caution about the prospects for faster economic expansion for the rest of the year, stressing it is critical to improve employment to achieve a full-fledged recovery.

We can t expect the domestic economy to improve at the same pace as the second quarter unless employment is revived quickly, said Kim.

Korea s worsening job data show no signs of abating, as the number of unemployed in the country stood at nearly 1 million as of June, up 25.6 percent from a year earlier. The seasonally adjusted jobless rate is 4 percent, the highest level in more than eight years.

By Jung Ha-won [hawon@joongang.co.kr]