South Korea’s economy grows at slowest pace in three years

By Youkyung Lee, AP

SEOUL — South Korea’s economy grew 2 percent in 2012, its weakest performance in three years, and is not expected to rebound strongly this year, the central bank said Thursday.

The Bank of Korea blamed weak growth on a drop in corporate investment and lackluster exports, which offset the government’s increased spending on construction projects and welfare. The government spending contributed 0.6 percentage point to the 2012 growth rate.

South Korea’s economy, Asia’s fourth largest, is forecast to improve only modestly this year because demand for exports has been sapped by Europe’s debt crisis and an uncertain recovery in the U.S. The central bank earlier this month downgraded its 2013 growth forecast to 2.8 percent from its 3.2-percent forecast in October.

Another challenge to South Korea’s export-reliant economy is the strengthening of the local currency against the U.S. dollar. A stronger won can make South Korea goods such as cars made by Hyundai Motor Co. more expensive than those by Japanese rivals. Japan’s currency, meanwhile, has weakened as its new government tries to engineer an economic recovery.

South Korea’s government plans to increase support for small and medium enterprises that are more vulnerable to volatile foreign exchange rates than bigger exporters, it said Tuesday.

For the final three months of 2012, the economy grew 0.4 percent from the previous quarter. That was better than 0.1-percent growth in the July-September quarter because of a modest rise in consumer spending.

But Bank of Korea director-general Kim Young-bae said it is too soon to say that the economic slowdown has bottomed out.

The central bank kept its policy rate steady at 2.75 percent for a third month in January rather than cutting it, partly because the economy is expected to get a boost from front-loading of government spending in the next few months.

The government of president-elect Park Geun-hye, who takes office in February, is planning to spend about 70 percent of the government’s annual budget during the first half of this year to aid the recovery.