South Korea beats growth forecast

South Korean investors are keeping an anxious eye on oil prices

The South Korean economy grew more quickly than expected during the first three months of the year, official figures have shown.

South Korea's central bank said growth for the first three months of 2004 came in at 5.3%, helped by strong exports.

The figure, which beat forecasts of about 5%, was the country's best quarterly growth rate since 2002.

But the Bank of Korea warned that high oil prices and a slowdown in China could weigh on growth later this year.

"We had predicted a fully-fledged economic recovery in the second half, but our economy could be affected by high oil prices and China reining in its overheating economy," Bank of Korea director general Byun Ki-Seok said.

Consumer woes

The country's better than expected performance in the first quarter reflected a jump in export demand, driven by stronger global growth.

Total exports were up by nearly 30% on the same period last year, led by strong sales of microchips, mobile handsets and cars.

But the export boom did not feed through into domestic demand, with private consumption falling by 1.4% on the year.

South Korean consumer spending has been stifled by a personal debt crisis brought on by a binge in credit card borrowing during the late 1990s.

Earlier this week, the government unveiled an interest free repayment scheme aimed at helping out millions of credit card users who have built up unmanageable debts.

Economists agreed that high oil prices posed a threat to Korea's performance in the months ahead, but played down the prospect of an abrupt slowdown in China.

"China will likely succeed in a soft landing and the US economy will maintain its expansion despite higher interest rates," said Kwon Soon-Woo at the Samsung Economic Research Institute.

"The key concern is oil prices. If oil prices remain at high levels, it will eat into our exports and dent overall growth."