AP reported that South Korea's economic growth slowed in the second quarter of 2010 despite gains in exports, manufacturing and capital outlays as construction contracted and government spending and services weakened.

The Bank of Korea said that gross domestic product expanded 1.5% in the three months ended June 30th 2010 as compared with the first quarter of 2010, when it grew 2.1%. Compared with the same period of 2009, the economy grew 7.2%.

It may be noted that South Korea has rebounded strongly from the global downturn to expand six straight quarters, boosted by record low interest rates, government stimulus spending and robust exports. The latest GDP figure comes amid worries over the sustainability of the global recovery as monetary authorities start to raise borrowing costs and government stimulus programs that have helped promote growth wind down.

In the second quarter of 2010, South Korea's manufacturing, exports and capital spending all posted increases from the previous three months as the country's factories churned out more machinery and automobiles. Construction, however, shrank 0.8% during the three month period as compared with a gain of 1.9% the previous quarter.

The Bank of Korea earlier this month raised its economic growth forecast to 5.9% in 2010. Also, at its July policy meeting the bank lifted its key interest rate to 2.25% from a record low 2% amid the strong growth outlook and expectations for higher inflation.

The Bank of Korea said when it raised its growth forecast that consumer price inflation was expected to increase at a faster pace in the second half of the year and would exceed the bank's medium term inflation target of 3% from the fourth quarter onward.

According to Bank of Korea's forecast, for 2010, the consumer price index will reach 2.8%, the same as last year, but is expected to rise to 3.4% in 2011.

(Sourced from Associated Press)