Korea's economic growth cools down to 0.3 percent in Q2

The South Korean economy grew at a slower pace than previously estimated in the second quarter on weaker facility and construction investment, the central bank said Thursday, cementing market expectations for a rate cut this month.

South Korea's gross domestic product (GDP), the broadest measure of economic performance, grew a revised 0.3 percent in the April-June period from three months earlier, down from an earlier estimate of 0.4 percent, according to the Bank of Korea (BOK).

The second-quarter growth more than halved from a 0.9 percent on-quarter expansion tallied in the first quarter and marked the slowest growth since a 0.3 percent expansion in the fourth quarter of last year.

The country's GDP grew 2.3 percent from a year earlier from a previous estimate of 2.4 percent.

Market watchers said that the weak growth data underpinned their forecast that the BOK is likely to deliver another rate cut to 2.75 percent as early as this month to prop up the growth.

The BOK froze the key rate at 3 percent last month after making a surprise rate cut in July to cushion impacts of the eurozone debt crisis on the Korean economy.

"The third-quarter growth is likely to remain weak as well, given faltering exports, which is different from the BOK's forecast," said Lee Sung-kwon, a senior economist at Shinhan Investment Corp.

"Dimmer global economic outlooks and a raft of weak domestic economic data warrant a rate cut for September."

The central bank earlier forecast that the quarterly growth is likely to reach around 1 percent in the third and fourth quarter, leading the full-year growth to reach 3 percent. But most analysts projected that Asia's fourth-largest economy will likely grow in the 2-percent range this year.

The protracted eurozone debt woes and China's slowing economy have already dented Korea's exports, which account for about 50 percent out of the local economy. Domestic demand also remained sluggish amid growing household debt.

Exports of goods contracted 1.4 percent on-quarter in the second quarter, unchanged from its earlier estimate, according to the BOK. Imports contracted 1.8 percent last quarter, indicating that domestic demand remained sluggish and companies' push to cut facility investment lowered imports of capital goods.

Private spending, one of the main growth engines of the Korean economy, rose 0.4 percent, lower than a previous estimate of 0.5 percent.

Facility investment fell 7 percent, compared with a 6.4 percent contraction and construction investment fell 0.4 percent, a reversal from an earlier estimate of a 0.3 percent gain.

Korea's construction sector remained lackluster as the local economy was in a slump and the number of unsold apartments increased amid households' propensity to delay home buying due to price falls. (Yonhap News)