Korean economy grows 0.4 percent on-quarter in Q2

The quarterly growth of the South Korean economy more than halved in the second quarter from three months earlier as the persisting eurozone debt crisis eroded exports, the central bank said Thursday.

Asia's fourth-largest economy grew 0.4 percent in the April-June period, slowing from a 0.9 percent on-quarter expansion tallied in the first quarter, according to an advance estimate by the Bank of Korea (BOK).

It marked the slowest growth since a 0.3 percent expansion in the fourth quarter of last year and the second-quarter data was lower than a market consensus of 0.5 percent.

The country's gross domestic product (GDP), the broadest measure of economic performance, rose 2.4 percent last quarter from a year earlier, the weakest growth in nearly three years.

The weaker growth for the second quarter was widely anticipated as the BOK unexpectedly cut the key rate by a quarter percentage point to 3 percent in July in a bid to shield the economy from the eurozone debt problems. Market players bet on an additional rate cut this year.

"The growth of consumer spending slowed while facility investment and exports contracted in the second quarter," the BOK said in a statement.

Reflecting increased downside risks to growth, the BOK cut its

2012 growth forecast on July 13 to 3 percent from its earlier estimate of 3.5 percent. The bank hinted that the full-year growth may reach below 3 percent as downside risks to growth are deemed predominant.

The persisting eurozone debt crisis is making global economic outlooks bleaker. The eurozone risks and China's slowing economy are feared to hurt South Korea's exports, which account for about 50 percent out of the GDP.

According to the central bank, exports declined 0.6 percent on-quarter in the second quarter after expanding 3 percent three months earlier.

The BOK earlier said that the economic growth is expected to underperform its long-term growth potential for a considerable period of time, indicating that demand-pull inflationary pressure would ease.

The growth of headline inflation has been easing with consumer prices growing at the 2-percent range for the fourth straight month in June. The BOK said consumer inflation is expected to run below its median inflation target of 3 percent for the time being.

Analysts said that the Korean economy is likely to grow at the 2-percent range this year, raising speculation that an additional rate cut will come within this year.

"Unless the eurozone situations turn better, there is a high chance that the local economy will likely grow below 3 percent this year due to weaker exports and sluggish domestic demand," said Lee Sang-jae, a chief economist at Hyundai Securities Co.

"The BOK will likely cut the key rate one more time and a potential third rate reduction will depend on how external conditions develop."

Private spending, one of the main growth engines of the Korean economy, grew 0.5 percent last quarter, slowing from 1 percent growth in the preceding quarter.

Facility investment contracted 6.4 percent after growing 10.3 percent in the first quarter, and construction investment grew 0.3 percent after falling 1.2 percent in the previous quarter. (Yonhap News)