The South Korean economy grew at a faster pace than previously estimated in the second quarter as construction investment performed better than expected, offsetting slowing exports, the central bank said Tuesday.
But analysts said that the outlook for the local economy largely appears weak as a global economic slowdown is likely to hurt exports, which account for about 50 percent of the economic output.
The country's gross domestic product (GDP), the broadest measure of economic performance, grew a revised 0.9 percent in the April-June period from three months earlier, slightly up from an earlier estimate of a 0.8 percent expansion, according to the Bank of Korea (BOK).
Although the second-quarter growth slowed from a 1.3 percent on-quarter gain, the Korean economy has now logged positive growth for 10 straight quarters.
The BOK said that even in the face of deteriorating external conditions, the growth momentum is likely to remain largely intact in the current and coming quarters.
"In the second quarter, the economic growth was led by domestic demand," Jung Young-taek, director of the BOK's national accounts division, told reporters.
"External economic conditions worsened, but for now, there are not enough downside factors to lower the growth estimate for the third and fourth quarters."
The BOK earlier said that the quarterly growth would reach around 1.5 percent in the third and fourth quarter, respectively.
The data came two days before BOK policymakers hold a monthly rate-setting meeting amid dimmer global economic outlooks.
Many analysts predicted that the BOK is likely to freeze the key rate at 3.25 percent for the third straight month on Thursday even as the August inflation hit a 3-year high.
"Sluggish U.S. job markets and the eurozone debt fears are deepening concerns about the global slowdown," said Lee Sung-kwon, a senior economist at Shinhan Investment Corp.
"In the third quarter, the growth is likely to reach around 1 percent at best on weakening exports and for the full year, the Korean economy may grow around 3.9 percent."
The prospects for the global economy are getting bleaker as the first-ever U.S. credit downgrade and the eurozone sovereign risks are raising concerns that the global economy may slide back into a recession.
Debate over a third round of quantitative easing, known as QE3 in markets, has heated up as a batch of U.S. economic data is raising expectations that the U.S. will lay out more stimulus measures.
Finance Minister Bahk Jae-wan said last week that the government could revise down its growth outlook for the year, which currently stands at 4.5 percent, citing economic uncertainty. The BOK's 2011 growth forecast stood at 4.3 percent.
But even in the face of rising economic uncertainty, South Korea's high inflation is unnerving policymakers as consumer prices exceeded the upper ceiling of the BOK's 2-4 percent inflation target for the eighth straight month. In August, Korea's consumer prices jumped a jaw-dropping 5.3 percent from a year earlier, faster than 4.7 percent in July.
Korea's data on trade surplus and industrial output are also raising alarm bells about the health of the economy. The country's trade surplus shrunk to US$821 million in August on record imports and its industrial output grew at the slowest pace in 10 months in July.
Exports gained 0.9 percent on-quarter in the second quarter, down from an earlier projection of a 1.5 percent expansion.
Private spending, one of the main growth engines of the Korean economy, rose 0.9 percent, compared with a previous estimate of a 1 percent advance.
Facility investment gained 3.9 percent, smaller than a 4 percent growth forecast, and construction investment, one of the main drags on the economy, gained 1.6 percent, a turnaround from an earlier estimate of a 0.4 percent fall.
"In the first half, the government's fiscal spending was lower than expected. In the second half, construction investment, boosted by state-led construction projects, is expected to gain ground," Jung at the BOK said.
The country's gross national income (GNI), a gauge of measuring the actual purchasing power of the population, rose 0.2 percent in the second quarter, a turnaround from a 0.1 percent decline in the preceding quarter.
The BOK said terms of trade worsened last quarter, raising trade losses, but continued economic growth and income gains from overseas helped the GNI return to positive terrain.
The government and the BOK forecast that consumer inflation will grow 4 percent this year. The BOK has raised the borrowing costs by a combined 1.25 percentage points from a record low of 2 percent since July of last year in a bid to tame inflation.