S. Korea Economy Grew at Fastest Pace in 7 Years

South Korea’s economy grew at its fastest pace in over seven years in the third quarter amid strength in manufacturing and capital spending as Asian countries lead the global recovery.

Gross domestic product grew 2.9 percent in the three months ended Sept. 30 compared with the previous three months when it expanded 2.6 percent, the Bank of Korea said Monday. The result, which far exceeded expectations, marked the strongest growth since an expansion of 3.8 percent in the first quarter of 2002.

Investors cheered the news, sending Seoul’s Kospi stock index up 1 percent to close at 1,657.11. The benchmark has soared 47 percent this year, erasing a nearly 41 percent decline in 2008. The South Korean won rose against the dollar.

“It seems as much as anywhere it’s a full-fledged recovery in Korea,” said David Cohen, chief of Asian forecasting at Action Economics in Singapore. He termed “dramatic” the economy’s turnaround from the depths it hit late last year as the global financial meltdown sapped Asia’s fourth-largest economy.

The East Asian country — home to industrial powerhouses such as Samsung Electronics Co. and Hyundai Motor Co. — has been recovering from its worst downturn since the 1997-98 Asian financial crisis as a weaker currency and government stimulus programs overseas boost exports. A record-low benchmark interest rate of 2 percent and government spending at home have also helped stimulate growth.

Neighboring China’s economy, the world’s third largest, grew 8.9 percent in the third quarter from a year earlier, accelerating from an expansion of 7.9 percent in the second. Japan, the world’s second-largest economy, grew at an annual pace of 2.3 percent in the second quarter, following a yearlong contraction. Japan has yet to release figures for the third quarter.

In South Korea, manufacturing expanded 8.7 percent in the third quarter, capital spending grew 8.9 percent, consumer spending — boosted by purchases of automobiles — gained 1.4 percent and exports of goods expanded 5.1 percent.

Exports, though still growing, came off the 14.7 percent surge recorded in the second quarter. Lim Ji-won, economist at JP Morgan in Seoul, said that the lower third-quarter figure represents a “more sustainable pace of gain.”

She said that the 2.9 percent quarter-on-quarter growth in GDP — which she calculated as equaling an annualized expansion of 12.3 percent — exceeded expectations.

“The main upward surprise was for the manufacturing sector,” she said. “The number is really super strong.”

The GDP numbers released Monday are preliminary and subject to revision. The Bank of Korea does not provide an annualized growth figure.

South Korea’s unemployment rate fell in September to a nine-month low of 3.4 percent, consumer and business sentiment have risen and the current account — the country’s broadest measure of trade — is firmly back in surplus after a deficit last year for the first time since 1997. Hyundai and affiliate Kia Motors Corp. reported record quarterly net profit in the third quarter as sales rose.

The GDP figure marks the third straight three-month period that the economy has grown. It eked out a 0.1 percent expansion in the first quarter after having contracted 5.1 percent in the final three months of 2008.

The central bank also said that the economy grew in the third quarter compared with the same period last year, expanding 0.6 percent. That snapped three straight quarters of year-on-year contraction.

“It’s pointing to a likelihood that they can escape an annual contraction in GDP for 2009,” Cohen said of the results. He predicted South Korea will scrape by with a 0.2 percent expansion for the full year after growing 2.2 percent in 2008.

Late last year amid the pessimism of the world financial crisis some economists were predicting the South Korean economy might shrink 3 percent in 2009. The last annual GDP contraction was in 1998, when it skidded 6.9 percent amid the Asian crisis.

The economic performance of many Asian countries this year is in stark contrast to the U.S. and Europe, where some remain mired in recession. The German and French economies each grew a modest 0.3 percent in the second quarter. They have yet to release results for the third.

Britain’s economy, however, shrank 0.4 percent in the third quarter, confounding expectations of growth.

The United States shrank 0.7 percent in the second quarter, though is expected to have expanded in the third after four straight quarters of decline.

10/26/2009 5:36 AM KELLY OLSEN, AP Business Writer SEOUL, South Korea