South Korean growth at seven-year high

By Song Jung-a and Jamil Anderlini, The Financial Times

South Korean president Lee Myung Bak, left, has much to thank China for his nation's rebound.

STORY HIGHLIGHTS

Rising Chinese demand helped drive South Korea's growth
Asia's fifth-largest economy grew 2.9 per cent from the previous quarter
South Korean recovery underlines importance of Asian demand

Rising Chinese demand helped drive South Korea's economy to its fastest growth in seven years in the third quarter, underscoring how Asia is leading the global economy and trade out of the worldwide downturn.

Asia's fifth-largest economy grew 2.9 per cent from the previous quarter as South Korean exporters benefited from rising Chinese demand. Last week, China said its economy, which has regained speed on the back of massive government stimulus spending, expanded 8.9 per cent in the third quarter from a year ago.

The South Korean recovery underlines how both demand and production from Asian countries has assumed an increasing role in global growth over the past few months.

A widely watched indicator of trade from the Dutch Bureau for Economic Policy Analysis, released last week, showed that import demand from emerging market Asian countries rose 6.6 per cent in the three months to August, sucking in imports from the rich world as well as from other regional economies.

Li Keqiang, the Chinese vice-premier in charge of the economy, said on Monday that China's economy was in better shape than the government had forecast this year.

In relatively upbeat remarks that contrasted with recent comments by senior Chinese officials, Mr Li said that the recovery had been "consolidated".

While Mr Li stressed continuity in fiscal and monetary policy, his language seemed to pave the way for a reduction in economic stimulus measures.

Among Asian countries, South Korea and India are seen as leading regional candidates to follow Australia's lead in raising interest rates in the next few months. While the Reserve Bank of India is not expected to push up rates when it meets today, it warned on Monday that "inflationary pressures have started to emerge".

Lee Seong-tae, governor of the Bank of Korea, which will review rates on November 12, said last week keeping rates at a record low level for too long would hurt the economy, partly because of the level of household debt in South Korea.

The South Korean economy -- the world's 15th largest -- grew 0.6 per cent in the third quarter compared with the same period last year.

Kim Myung-kee, a senior central bank official, said fourth-quarter growth would "easily go beyond 5 per cent" if momentum continued.

Leading exporters such as Hyundai Motor and Samsung Electronics have reported strong earnings growth. South Korean exports to China in September, for example, rose 4 per cent from a year earlier, the first annual rise in nine months.

Mr Kim and other South Korean officials said the economy could post flat or positive growth for the year, an improvement over the last official forecast of a 1.5 per cent contraction.

The GDP figures helped South Korea's Kospi equity index rise 1 per cent.