S. Korea's GDP growth surprises

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S. Korea's GDP growth surprises


Tuesday, October 25, 2005, CNN.com


SEOUL, South Korea (Reuters) -- South Korea's economy grew faster than expected in the third quarter and at its fastest pace in nearly two years, boosted by recovering exports and domestic demand, data showed on Tuesday.

Analysts said the data raised the prospects the central bank might have to be more aggressive with monetary policy.

It raised interest rates this month for the first time in more than three years, but indicated there would no further rises this year.

"The data will surely make people think that the chances have risen for a second interest rate hike taking place within this year," said Oh Suk-tae, an economist at Citibank.

"But the weak construction sector may make the central bank hesitate before delivering another hike in interest rates because the industry is very sensitive to interest rate levels."

Gross domestic product rose a seasonally adjusted 1.8 percent in the quarter ended September 30, central bank data showed, the fastest pace since a 2.8 percent rise in the fourth quarter of 2003.

The rise in GDP compared with a median 1.6 percent increase forecast in a Reuters poll and follows growth of 1.2 percent in the second quarter and 0.4 percent in the first.

From a year earlier, Asia's fourth-largest economy expanded 4.4 percent, above expectations for a 4.3 percent increase, and outpacing a 3.3 percent gain in the second quarter.

The country's economic growth has been built largely on exports since a credit card bubble burst in 2002 to leave households under a mountain of debt.

But signs that domestic demand was picking up prompted the central bank to raise its overnight call rate target to 3.50 percent from a record low 3.25 percent on October 11 to head off future inflation.

The GDP data showed private consumption, which accounts for just over a half of the economy, expanded a seasonally adjusted 1.2 percent in the July-September period, the fifth consecutive quarter of growth.

The export-led manufacturing sector grew a seasonally adjusted 3.1 percent in the third quarter thanks to a 7.6 percent rise in shipments, both marking their fastest growth since the fourth quarter of 2003.

In raising interest rates, Bank of Korea Governor Park Seung said borrowing costs would stay low enough to support economic growth at least through 2006, adding inflation might not emerge as an immediate threat.

He also reiterated the central bank's forecast that economic growth would slow to 3.8 percent this year from 4.6 percent in 2004, but said growth would accelerate to 5 percent in 2006.

 

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