South Korean economy grows at fastest pace in seven years

 South Korea’s economy grew at the fastest pace in seven years, stoking speculation the central bank will raise borrowing costs for the first time since the collapse of Lehman Brothers Holdings Inc. Gross domestic product increased 2.9 % in the third quarter from three months earlier, when it expanded 2.6 %. That was the fastest since the first quarter of 2002. From a year earlier, GDP rose 0.6 %. South Korea led a regional rebound with China and Singapore as companies including Hyundai Motor Co. and Samsung Electronics Co. reported surging profits, driven by exports. Hyundai, South Korea’s largest automaker, posted record third-quarter net income of 979.2 billion won ($827 million). Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, said earlier this month operating profit more than doubled to as high as 4.3 trillion won in the same period. The nation’s Kospi stock index took the year’s gains to 47 %. The won rose 0.4 % against the U.S. dollar to 1,177.05, having increased 21 % in the past 12 months. 

Bank of Japan policy makers this week are forecast to consider an announcement ending their purchases of corporate bonds in December, and economists including those at Credit Suisse Group AG predict China’s central bank will begin restraining credit growth in that country by year-end. The Federal Reserve has already announced a phase-out of some of its emergency programs, while retaining a commitment to keep interest rates near zero for an “extended period.” 

The nation still faces risks from a possible delay in the global economic recovery, asset price instability and higher oil prices. It’s “premature” to unwind expansionary policies introduced to prevent the economy slumping. But keeping interest rates at a record-low for an extended period isn’t healthy for the economy. Low rates have spurred consumer borrowing, with bank lending to households expanding for a seventh straight month in August before falling in September. 

South Korea’s exports gained 5.1 % in the third quarter from the previous three months. Corporate investment in factories and equipment climbed 8.9 %. Private consumption advanced 1.4 % from the second quarter. Government spending fell 0.8 % and construction investment dropped 2.1 %. Sales at South Korea’s major department stores rose in September for a seventh straight month and exports fell at the slowest pace in 11 months. Manufacturers’ confidence climbed to the highest level in two years, earlier reports showed. 

The rebound comes as Singapore raised its 2009 economic forecast after gross domestic product expanded for a second consecutive quarter in the three months through September. China’s economy expanded at 8.9 % in the third quarter, the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession.