After a big fall South Korean economy recovers at the fastest pace in six years

South Korea's economy, helped by government stimulus spending and record-low interest rates, expanded at the fastest pace in almost six years last quarter. The central bank said today that gross domestic product increased by 2.3 % from the first quarter, when the nation skirted a recession by growing 0.1 %. That compared with the median estimate of 2.2 % in a Bloomberg survey and was the fastest since a 2.6 % expansion in the last quarter of 2003.

South Korea joins China and Singapore in leading a regional rebound, marking a turnaround for an economy whose currency fell 26 % last year on concern companies would be unable to repay foreign debt. To stave off a crisis, the country forged a dollar-swap agreement with the US, pumped money into the banking system, increased fiscal spending, set up funds to replenish banks' capital and cut interest rates.

Optimism that Asia's fourth-biggest economy will come around pushed the Kospi stock index 33 % higher this year, after a 41 % fall in 2008. The won gained 7 % in the past three months against the dollar. In addition, today`s report showed that exports of goods advanced 14.7 % in the second quarter from the previous three months, when it fell 3.4 %, the biggest increase in overseas shipments since the fourth quarter of 2003. Corporate investment in factories and equipment increased by 8.4 %, and private consumption gained 3.3 % from the first quarter, the biggest increase since the first quarter of 2002. Besides, government spending advanced 1% and construction investment gained 0.4%.

The central bank pared the benchmark interest rate by 3.25 percentage points between October and February, the most aggressive easing in a decade, to the current 2 %. It forecasts second-quarter growth at 2.3 %. Meanwhile, the Bank of Korea and the government raised their economic forecasts this year, estimating smaller-than-expected contractions for 2009. The bank said that the economy will decrease by 1.6 % in 2009, less than the 2.4 % decline predicted in April, before expanding 3.6 % in 2010.

However, the nation's jobless rate rose to an eight-year high of 4 % in June, and the impetus from the government's 67 trillion won in extra spending will eventually fade.