Korean GDP expands at fastest pace in 7 years

in July to September, stronger than a 2.2 per cent rise forecast in a Reuters poll and the fastest clip since the first quarter of 2002. The Bank of Korea, which released the data on Monday, said Asia's fourth-largest economy would not have grown at all without the buildup in inventory and Finance Minister Yoon Jeung-hyun reiterated that it was too early for authorities to withdraw stimulus put in place to support activity during the financial crisis. "I see companies' restocking contributed substantially to the GDP growth, while consumption and construction investment remain weak," said Seo Cheol-soo, an economist at Daewoo Securities. "I do not think this data, while strong, will prompt the Bank of Korea to raise the key interest rate suddenly. (The rate rise will come) perhaps in the first quarter of next year." GDP rose a revised 2.6 per cent in the second quarter. The export-dependent economy expanded by 0.6 per cent in the third quarter from a year earlier, contrary to expectations for a decline of 0.3 per cent and marking the first year-on-year growth since the third quarter of 2008. December treasury bond futures more than halved their early 30-tick loss by 0055 GMT. The 1- and 3-year interest rate swap spread slightly widened, reflecting an unchanged near-term outlook for the policy interest rate. Rate rise seen by early 2010 The Bank of Korea said in a statement that private consumption and capital investment were the next biggest contributors to the quarterly growth after the inventory buildup, whereas government spending and net exports dragged on growth. government spending shrank by a seasonally adjusted 0.8 per cent in the third quarter after a 1.1 per cent gain in the previous quarter, underlining concerns that the effect of global stimulus was quickly fading. Most analysts expect the Bank of Korea to keep interest rates on hold until early next year to wait for evidence that the global economic recovery is on a solid footing following its worst downturn in decades. But some economists, including Song Jae-hyeok at SK Securities, argue the economy is strong enough to persuade the central bank to start a campaign of normalising interest rates from their record-low level of 2.0 per cent. The Bank of Korea next reviews the 7-day repurchase agreement rate on Nov. 12. "The impressive third-quarter GDP growth rate will likely persuade the Bank of Korea to raise rates in November, given that is has always tightened rates whenever the economy has expanded as fast as now," Song said. Bank of Korea Governor Lee Seong-tae said in August and September the central bank was ready to raise interest rates soon unless property prices and a credit boom subsided. But he significantly softened his tone in October. Reuters