South Korea economic growth slows as exports weaken

Hank Morris of Triple A Partners says South Korea's problems come from domestic and overseas customers

South Korea's economic growth slowed in the second quarter, as investment dipped and its exports sector was hurt by the eurozone debt crisis.

Gross domestic product (GDP) expanded by 0.4% in the April to June period. In the previous three months it grew 0.9%.

The economy grew 2.4% from the same period the previous year.

The data may prompt the central bank, which cut interest rates earlier this month, to ease its policy further.

The Bank of Korea unexpectedly cut its key interest rate to 3% from 3.25% in the first reduction for three years.

Analysts said the central bank may lower its borrowing costs further in the coming months.

"If growth rate is this low, it shows the conditions are quite serious," said Yum Sang-Hoon of SK Securities.

"Given the figures, I think the central bank will surely cut rates in September or October."

Long recovery period?

Start Quote

This is not just Korea's problem. So it's hard to say when exactly Korea's economy will pick up”

End Quote Yum Sang-Hoon SK Securities

South Korea, Asia's fourth-largest economy, relies heavily on exports for its economic growth, with the sector accounting for almost half of its output.

However, the sector has been hit hard by the ongoing debt crisis in the eurozone and a fragile recovery in the US, two of its biggest markets.

According to the Bank of Korea, exports in the second quarter fell by 0.6%.

Analysts said that given the global economic situation, the Korean economy may take a long time to recover.

"This is not just Korea's problem. So it's hard to say when exactly Korea's economy will pick up," said Mr Yum of SK Securities.

"It remains to be seen how the European problems are addressed."

At the same time, policymakers have found it tough to boost domestic consumption enough to offset the decline in foreign sales.

Domestic consumption rose by just 0.3% during the period, the latest data showed.

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