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Economy

South Korea logs fastest GDP growth in decade at 5.9% for Q2

Private consumption leads way but spending seen slowing amid COVID fight

A street in Seoul during a coronavirus resurgence in July. Consumption drove the economy in the second quarter but could slow in the third.   © Reuters

SEOUL -- South Korea's economy grew 5.9% on the year in the second quarter of 2021, as a recovery in private consumption and the government's aggressive expenditure led the way.

The Bank of Korea announced the country's gross domestic product for April-June on Tuesday, highlighting an increase in private consumption of both goods and services as the pace of COVID-19 vaccinations accelerated. The government also raised its outlays to support the economy.

The year-on-year figure is the best result in more than a decade, since the fourth quarter of 2010. Compared with the previous quarter, the economy expanded 0.7%.

"Private consumption and the government expenditure increased further, while investment in construction and exports declined," Park Yang-soo, a director at the BOK, said in an online news conference. "Auto production and exports dropped considerably due to the chip shortage."

The announcement comes a month after the government raised its GDP forecast for this year to 4.2%, the swiftest growth in 11 years, up from its December prediction of 3.2%.

Analysts warn consumption may slow in the third quarter due to strong social distancing rules amid the fourth coronavirus wave hitting the country since earlier this month.

"There is growing pessimism in the South Korean economy. Its vaccination progress has been trending sideways since late June amid a shortage" of shots, Moody's Analytics said in a report. "The latest coronavirus wave will weigh on employment, services and tourism recovery and drag on the country's overall growth."

Parliament did pass a 34.9 trillion won ($30.2 billion) extra budget on Saturday to pay 250,000 won in "disaster subsidies" to every person, except high-incomers and owners of expensive houses.

"The National Assembly timely passed the second supplementary budget, which should mitigate the negative economic impact of the fourth COVID-19 wave to some extent," said Kim Jin-wook, an economist at Citibank.

Still, the health authorities on Monday extended the highest level of social distancing rules in greater Seoul for two more weeks, banning three or more people from gathering after 6 p.m. The country's daily new cases hit a record of 1,838 last Thursday, as the delta and other variants spread quickly among young generations who are not yet vaccinated.

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