Government pump-priming and easy credit jolted South Korea's economy to its fastest growth in nearly six years in the second quarter, adding to evidence Asia is rebounding from the global slump.
The region's fourth-largest economy expanded 2.3 percent in the three months ended June 30, the Bank of Korea said Friday, as record low interest rates and government stimulus spending insulated it from the global downturn. Exports also contributed to the growth, which was the fastest in 5½ years.
South Korea joins Singapore and China among the Asian nations that have released stronger growth figures in recent weeks. Adding to the case for economic revival, the Asian Development Bank this week said East Asia could experience a "V'' shaped recovery in the next year.
David Cohen, director of Asian forecasting for Action Economics in Singapore, said "things are turning around."
Japan, the world's second-largest economy, is expected to report its first growth in five quarters next month, he said, though it remains unclear how strong the region's recovery will be.
Kang Chang-ku, an economist at the South Korean central bank, said the last time GDP grew more was in the fourth quarter of 2003 when it expanded 2.6 percent. The second quarter figures are preliminary and may be revised.
The expansion marked the second straight quarter of growth for Asia's fourth-largest economy after a contraction in the last quarter of 2008. It eked out a 0.1 percent gain in the first quarter after a contraction of 5.1 percent in the previous quarter.
China's economy, the world's third largest, grew 7.9 percent in the second quarter from a year earlier, accelerating from an expansion of 6.1 percent in the first. Singapore, meanwhile, grew for the first time in a year, its economy surging an annualized 20 percent in the second quarter.
Kwon Goohoon, economist at Goldman Sachs in Seoul, said South Korea's second-quarter figure equates to annualized growth of 9.5 percent. The Bank of Korea does not provide an annualized number.
Kwon said in a note that growth was "driven by a good mix of strong fiscal stimulus, a weak KRW (Korean won) and monetary easing."
He expressed doubt, however, that such a strong performance would be repeated the rest of the year as fiscal stimulus wanes and credit expansion slows.
In response to the global financial crisis last year and ensuing economic slowdown, the South Korean government increased spending to spur growth. The Bank of Korea, meanwhile, aggressively cut its key interest rate to a record low 2 percent, where it has stayed for five months.
The central bank said Friday that manufacturing and exports helped spur growth. Manufacturing expanded 8.2 percent in the second quarter while exports grew 14.7 percent.
South Korean exports, which slumped from late last year as consumers overseas cut spending amid the global downturn, have shown signs of improvement in recent months. The country's trade surplus has been hitting record highs.
But the result was not all good news and showed how far the economy has fallen. When compared with the same period last year, GDP, or gross domestic product, shrank 2.5 percent. That marked the third straight quarter of year-on-year contraction.
The last time that happened was in 1998, when GDP shrank from the previous year in all four quarters, said Kang, the central bank economist.
Indeed, economists are widely predicting South Korea's economy will contract in 2009 for the first time since shrinking 6.9 in 1998.
Still, the outlook is better than it was earlier this year.
Kwon said Goldman Sachs recently revised its forecast, predicting a contraction of 1.7 percent in 2009 instead of the earlier expectation of a 3 percent shrinkage, given the strong stimulus impact in the first half and prospects for a recovery in exports in the final six months of the year.