South Korea's economy, Asia's fourth largest, narrowly avoided recession in the first quarter as government pump priming offset a slump in exports but officials still predict a contraction for the full year.
Gross domestic product grew 0.1 percent in the first quarter from the last three months of 2008 when it shrank 5.1 percent, the Bank of Korea said Friday. A recession is usually defined as two straight quarters of contraction.
South Korea is battling its worst downturn since the Asian economic crisis of 1997-98 as exports and industrial production wilt in the face of a collapse in global demand.
The government has responded to the slump and rising unemployment with stimulus spending, including a 28.9 trillion won ($21.6 billion) supplementary budget announced last month. The Bank of Korea, meanwhile, has slashed its benchmark interest rate six times since October to a record low 2 percent to spur growth.
Melser cited the expected impact of increased government spending as the main factor. He said that a stronger-than-expected increase in household spending also contributed, though added that was unlikely to last.
"This does not look sustainable and reflects a dead-cat bounce after the massive drop in consumer spending in the final quarter of last year. Exports and investment are still both very weak and acted as major drags on growth."
Both the government and central bank forecast that South Korea's economy will contract on an annual basis in 2009 for the first time since 1998.
Compared with a year earlier, the economy shrank 4.3 percent in the first quarter as manufacturing, exports and capital spending all slumped. Capital spending contracted 22.1 percent, exports 14.1 percent and manufacturing 13.5 percent.
"The pace of contraction has decreased quite significantly," she said.
Manufacturing shrank 3.2 percent quarter-on-quarter after contracting 11.9 percent in the fourth quarter.
South Korea's economy grew 2.2 percent in 2008, the worst performance since an annual contraction of 6.9 percent in 1998.
Source: AP News