South Korea's economic growth cooled to 0.5 percent in the fourth quarter of last year from three months earlier as the growth of domestic demand eased and construction investment fell, the central bank said Wednesday.
From a year earlier, the country's gross domestic product (GDP), the broadest measure of economic performance, expanded 4.8 percent in the October-December period, according to an advance estimate by the Bank of Korea (BOK).
The fourth-quarter economic growth slowed from a 0.7 percent on-quarter expansion seen in the third quarter, but it was higher than the bank's previous forecast of a 0.4 percent advance.
For the whole year of 2010, Asia's fourth-largest economy grew at an eight-year high of 6.1 percent, sharply up from 0.2 percent growth in 2009.
"In 2010, the private sector recovered its growth momentum as the contribution of domestic demand to growth sharply rose," the BOK said in a statement. Domestic demand's contribution to GDP reached 7 percentage points last year, a turnaround from minus 3.8 percentage points in 2009.
Despite eased quarterly growth, the Korean economy has posted positive growth for eighth straight quarters, indicating that South Korea's economy is on a solid growth track.
The central bank earlier said the 2011 economic growth rate will be close to the potential growth level, adding that the local economy will likely expand 1.3 percent on-quarter in the first quarter.
BOK Gov. Kim Choong-soo said last week that a potential upgrade in growth outlook for the U.S. economy may prompt the BOK to revise up its growth forecast for this year. The bank put its growth projection at 4.5 percent in 2011 while the government is targeting about 5 percent.
The International Monetary Fund on Monday revised up its 2011 growth forecast for the world's largest economy to 3 percent from an earlier estimate of 2.3 percent. It also warned against growing inflation risks for emerging countries due to higher raw material costs.
South Korea is not an exception in struggling with mounting inflationary pressure. Demand-pull inflationary pressure, coupled with rising raw materials and food prices are exerting upward pressure on consumer prices.
Exports, which account for about 50 percent of South Korea's GDP, gained 2.4 percent on-quarter in the fourth quarter after expanding 1.7 percent three months earlier.
Private spending, one of the main growth engines of the Korean economy, expanded 0.3 percent, slowing from a 1.3 percent gain in the preceding quarter.
Facility investment contracted 1.6 percent after growing 5.5 percent in the third quarter, and construction investment fell 4.5 percent, a turnaround from a 1.3 percent gain in the third quarter and marking the worst performance since a 6.2 percent on-quarter contraction in the second quarter of 1998.
A possible upward revision for local economic growth indicates a buildup in demand-pull inflationary pressure, raising expectations that the BOK may accelerate the pace of the rate increase this year.
The BOK raised the key interest rate by a quarter percentage point to 2.75 percent in January in a bid to fend off inflationary pressure. It marked the third rate increase since the onset of the global financial crisis. (Yonhap)