Is the Korean Economy Finally Out of the Woods?

The Korean economy is seeing major signs of recovery. The second quarter saw the highest quarterly growth in 66 months and the main stock index recovered to the 1,500 mark thanks to stellar performances by Samsung Electronics, LG Electronics, and Hyundai Motors.

Yet many experts say the government’s limited spending availability and lingering uncertainty in the global economy make it unclear whether the recovery momentum will continue in the second half of the year.

The Bank of Korea yesterday said the economy grew 2.3 percent in the second quarter from the first, the largest since 2.6 percent growth in the fourth quarter of 2003.

In the fourth quarter last year, the economy contracted 5.1 percent due to the global financial crisis. Growth reached 0.1 percent in the first quarter and began a rapid ascent from the second.

The central bank attributed the growth to higher private consumption stemming from tax breaks on car purchases and growth in mobile phone sales; increase in exports of Information and communications technology (ICT) and petrochemical products; expansion of fiscal spending; and a rise in corporate facility investment.

Domestic consumption rose to 3.3 percent in the second quarter from 0.4 percent in the first. Facility investment soared to 8.4 percent from minus 11.2 percent over the same period. Exports also jumped 14.7 percent from a quarter ago.

Kim Myeong-ki, in charge of economic statistics at the central bank, said, “State spending will be reduced in the latter half. So exports will determine economic growth,” adding, “It’s uncertain whether the Korean economy will show its resilience since the U.S. economy can plunge into recession again and the domestic job market is expected to remain tight.”

The benchmark stock market index KOSPI jumped 6.1 points or 0.41 percent to close at 1,502.59 yesterday, the highest since it ended at 1,512.59 Aug 21 last year. The index rose for the ninth consecutive day, adding 124.47 points over the period in its longest surge since April 7, 2006, when the index rose for the 12th consecutive session.

Samsung Electronics said it posted global sales of 32.51 trillion won (26 billion U.S. dollars) in the second quarter and operating profit of 2.52 trillion won (2.02 billion dollars).

jaeyuna@donga.com jarrett@donga.com