S. Korea Economy Grows at the Fastest Pace in Two Years: Economy

South Korea’s economy grew the most in two years in the first quarter as the government front-loaded spending and exporters weathered the slide in the yen that aids rivals in Japan.

Gross domestic product gained 0.9 percent from the previous three months after a 0.3 percent increase in the fourth quarter, the Bank of Korea said today. That exceeded the median 0.7 percent estimate of 15 economists surveyed by Bloomberg News.

President Park Geun Hye unveiled a $15 billion extra budget and property stimulus package this month as Asia’s fourth-largest economy grapples with the yen’s decline, record household debt and a stagnant housing market. Today’s report may encourage Bank of Korea Governor Kim Choong Soo to continue to resist political pressure for an interest-rate cut after borrowing costs were left unchanged on April 11.

“A solid GDP figure will definitely reduce any bets on a further rate cut,” said Kong Dong Rak, a fixed-income analyst at Hanwha Investment & Securities Co. in Seoul. “Given government stimulus and improving global economic conditions, we may see even faster growth in the second half.”

The economy grew 1.5 percent from a year earlier as the government gave a fiscal boost by allocating 72 percent of this year’s budget spending to the first half.

The yen is down about 20 percent against the dollar for the past six months, while the won depreciated by only about 2 percent. The Korean currency rose 0.3 percent to 1,114.48 per dollar as of 10:41 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi stock index rose 0.6 percent.

Company Profits

Samsung Electronics Co.’s first-quarter operating profit beat analyst estimates as the world’s largest maker of mobile phones boosted sales of cheaper Galaxy handsets in emerging markets. The company’s full earnings report is tomorrow.

Hyundai Motor Co., South Korea’s largest carmaker, today posted first-quarter profit that exceeded analysts’ estimates on record sales in China. Chief Financial Officer Lee Won Hee said that while the strong won and weak yen are still a concern, the company can still achieve its annual sales target.

POSCO, Asia’s third-biggest steelmaker by output, reported a worse-than-estimated 29 percent decline in first quarter profit as prices fell on waning demand from carmakers and shipbuilders.

Today’s report showed government spending expanded 1.3 percent in the first quarter from the previous three months, when it declined 0.6 percent. Company investment on plant and equipment rebounded. Exports of goods and services rose 3.2 percent, while private consumption dropped 0.3 percent.

‘Strong Start’

“It’s a surprisingly strong start for the year,” Yoon Yeo Sam, an analyst at Daewoo Securities Co. in Seoul, said. “Unlike last year when the growth momentum fizzled in the second half, the economy will gain much more pace as long as the U.S. and China stay on track.”

Elsewhere in Asia, the Philippines central bank will probably keep the benchmark overnight borrowing rate unchanged while cutting the special deposit account rate today, economists surveyed by Bloomberg News predicted. Hong Kong’s exports may have risen in March from a year earlier, a separate Bloomberg survey showed.

The U.K. is due to report gross domestic product data for the first quarter. Spain’s unemployment rate probably rose in the three months through March, according to a Bloomberg survey. U.S. initial jobless claims probably fell to 350,000 last week from 352,000 in the previous period.

Weakness in the yen has only just begun and will continue for a “long time,” hitting South Korean makers of electronics, automobile and steel, the Bank of Korea’s Kim said yesterday.

‘Weak Yen’

“South Korea will seek how to counter the weak yen, including financial support for the most vulnerable exporters,” Kim said in a lecture in Chuncheon, northeast of Seoul. “The weak yen will continue for a long time, so we’re cautiously and closely looking at the change.”

In an interview in Seoul this week, a former BOK policy maker said that the central bank should resist any further pressure for a rate cut.

“The current level is still accommodative enough,” said Choi Do Soung, who served as a monetary policy committee member in 2008-2012. Lowering the benchmark could add risks in an economy that “relies too much on debt,” he said, citing household borrowing.

In the April 11 policy decision, the central bank expanded a program of cheap loans for small businesses.

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