South Korea's economic growth hit the highest in over five years thanks to monetary and fiscal stimulus efforts as well as recovery in private consumption from the negative effect of the Middle East Respiratory Syndrome (MERS) outbreak, central bank data showed Friday.
Real gross domestic product (GDP) increased 1.2 percent in the third quarter from the previous quarter, according to the Bank of Korea (BOK). From a year ago, the broadest measure of economic performance grew 2.6 percent.
The quarterly growth marked the highest since the second quarter of 2010 when the on-quarter GDP growth was 1.7 percent. It topped the BOK's earlier forecast of 1.1 percent for the third quarter.
After falling below 1 percent in the first quarter of last year, the quarterly GDP growth kept the zero-percent rate for five straight quarters to the second quarter of this year when the figure dropped to 0.3 percent following the MERS outbreak.
Private consumption, which was hit hardest by the MERS outbreak in the second quarter, recovered from the fears of the infectious disease as no new MERS case has been reported since July.
The seasonally adjusted figure for private consumption jumped 1. 1 percent in the third quarter after declining 0.2 percent in the second quarter. "Domestic demand led the third-quarter growth.
Private consumption recovered from contraction caused by the MERS," Jeon Seung-Cheol, director general of the BOK's economic statistics department, told a press conference.
Jeon attributed the rebound in consumer spending to the government measures to reinvigorate the economy, like a consumption tax cut and a fiscal stimulus package worth billions of U.S. dollars including an extra budget plan.
The BOK cut its policy rate by a quarter percentage point in March and June each to a record low of 1.5 percent, helping boost the economy along with the fiscal stimulus measures.
The third-quarter rebound, however, was expected to be short-lived as exports, the main engine of the economy, slowed down amid the expected reduction in the positive effect from stimulus efforts.
Exports, which account for about half of the economy, reduced 0. 2 percent in the third quarter from three months earlier after rising 0.3 percent in the second quarter.
The consumption tax cut is scheduled to end in the fourth quarter, and the implementation of the supplementary budget, including social overhead capital (SOC), would reduce in the fourth quarter.
The BOK revised down its 2015 growth outlook for the economy to 2.7 percent from 2.8 percent estimated three months earlier, meaning the fourth-quarter GDP growth would be 0.5 percent.
Helped by the supplementary budget implementation, consumption by the government expanded 1.9 percent in the third quarter on a quarterly basis, up from a 0.8 percent rise in the second quarter.
Investment in the construction sector jumped 4.5 percent during the quarter after rising 1.6 percent in the second quarter on the back of a rise in the SOC by the government.
On the production side, production among service companies gained 1 percent in the third quarter, after posting a zero-percent growth in the second quarter, thanks to the recovery in the MERS-hit sectors such as the food and boarding, transport and healthcare industries.
Gross domestic income (GDI), which gauges all income earned while producing goods and services, stayed at a low level of a 1 percent growth in the third quarter due to the worsening of trade terms.
Prices for imported goods declined on the back of lower crude oil prices, but export prices fell at a faster pace on steeper price fall in major export items such as semiconductors and oil products.
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