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South Korea Q2 GDP growth seen steady, China slowdown clouds outlook

imageSEOUL: South Korea's second-quarter growth probably held steady around a 2-year high, but there are worrying signs that the pace of the recovery could lose some steam due to a rapid slowdown in China's economy.

Asia's fourth-largest economy was estimated to have grown by a seasonally adjusted 0.8 percent in the April-June period from the previous three months, according to the median forecast of 23 economists polled by Reuters.

In the first quarter, gross domestic product (GDP) rose by a same 0.8 percent over the previous three months, marking the fastest in two years. Both the government and central bank expect growth to quicken later this year.

From a year earlier, the South Korean economy probably grew 2.0 percent in the second quarter after a 1.5 percent rise in the first quarter, marking the quickest annual growth in a year, the Reuters poll showed.

The optimism was based on views the US economy will stay on course for a steady recovery and China's slowdown will be modest, but data released on Wednesday raised concern that China's economy may be slowing much faster than expected.

"We cannot be very optimistic when looking at China," said Kim Yoon-gee, senior economist at Daishin Economic Research Institute. "We have yet to see what kind of policy (China) will come up with to lift (China's) economy."

China is South Korea's largest export market, taking in one-quarter of total overseas shipments from the smaller neighbour, and exports have been the main driver of growth for South Korea as heavy household debt kept consumer spending at bay.

Data out earlier in the day provided sobering reading, with a survey showing a preliminary measure of the activity in China's vast manufacturing sector slowed to an 11-month low in July as new orders faltered and the job market darkened.

The gloom in China also affected other economies.

Japan's government data showed on Wednesday the country's exports to China rose 4.8 percent in June from a year earlier, far slower than an 8.3 percent rise in May and contributing to a sharp slowing in overall shipments abroad.

The government of President Park Geun-hye, now in office for just more than 100 days, has adopted various stimulus measures including a $5 billion additional budget spending bill while the central bank cut interest rates in May.

Earlier this month, the Bank of Korea upgraded its forecast for this year's economic growth to 2.8 percent from the previous 2.6 percent, mainly reflecting the expected effect from the stimulus measures, but many analysts remain less optimistic.

South Korean exports during the April-June period grew only 0.8 percent over a year before, and companies and consumers alike were reluctant to increase spending due to uncertain global as well as local economic prospects. The country's economy grew 2.0 percent last year and even if growth picks up this year, it would still be far below the pace of growth the country saw before the 2008-2009 crisis. It grew by 4.7 percent on average in each of the 10 years until 2007.

Copyright Reuters, 2013