South Korea's growth slows due to eurozone crisis

South Korea's economy grew at its slowest pace for two years in the final quarter of 2011 as Europe's debt crisis took its toll on exports and consumer spending, the central bank said Thursday. Gross domestic product in October-December rose 0.4 percent from the previous three months, compared with a 0.8 percent rise in the third quarter. It was the lowest quarter-on-quarter increase since 0.2 percent in October-December 2009. Year-on-year, Asia's fourth largest economy grew 3.4 percent in the fourth quarter of 2011 compared to 3.5 percent in July-September. "Amid sluggish domestic demand, exports turned negative," senior central bank official Kim Young-Bae told reporters. "The sovereign debt crisis in Europe had a larger than expected impact on facility investment and private consumption." Exports, accounting for about half of GDP, declined 1.5 percent quarter-on-quarter in October-December after expanding 2.2 percent in the three months earlier. Private spending fell 0.4 percent compared to a 0.4 percent rise in the previous quarter. Facility investment dropped 5.2 percent after falling 0.8 percent in July-September, while construction investment fell 0.3 percent following a 1.8 percent rise in the third quarter. The economy grew 3.6 percent last year compared with a 6.2 percent rise in 2010. Barclays Capital forecast that growth would pick up in the first quarter of this year amid firm US economic data and resilient demand from China. It said an upward revision in Thursday's figures was possible next month because of firm employment conditions and a surge in start-up companies. Barclays tipped a 1.0 percent quarter-on-quarter GDP expansion in January-March and maintained its 3.5 percent forecast for the full year. The central bank forecasts 3.7 percent growth this year. The central bank this month froze its key interest rate at 3.25 percent for a seventh straight month despite inflationary pressures, citing a significant global slowdown and Europe's persistent sovereign debt crisis. HSBC Global Research said Thursday's figures confirm that "weakness is now embedded inside Korea's economy". It tipped a 25 basis point rate cut to support domestic demand by the end of the current quarter. It said the export outlook remains firm, thanks to a weaker won, the effect of free trade deals and easier manufacturing import costs. But the research unit said private spending contracted quarter-on-quarter for the first time since March 2009, with household purchasing power hit by high inflation and increasingly limited access to new bank credit. "Whilst this is far from a hard landing scenario, it is becoming clear that the economy will need a healthy boost, especially with no signs of a rebound anytime soon," HSBC Global Research said in a commentary.