S Korea economy grows at fastest pace in three quarters

Jasper Kim, from Ewha Womans University in Seoul says inflation remains a big threat to Korea's economy

South Korea's economy grew at a better-than-expected pace in the first three months of the year the latest government data shows.

The country's gross domestic product (GDP) grew by 4.2% in the first quarter compared with the same period last year.

The growth was powered by an increase in exports as well as domestic spending.

South Korea is the fourth-largest economy in Asia.

When compared with the previous three months, GDP expanded 1.4%, the fastest expansion of growth in three quarters.

Analysts say that the economy is likely to sustain the momentum going forward.

"Although external uncertainties persist, exports, which lead the South Korean economy, are solid," said Lee Sung-Kwon of Shinhan Investment Corp.

Mr Lee also said that improving conditions in Korea's key markets, like the United States, have also contributed to growth.

Start Quote

Given that our exporters depend heavily on parts imports from Japan, Japan's earthquake may disrupt parts supply”

End Quote Kim Yoon-Gee Daishin Economic Research Institute
Japanese affect

While booming exports have powered Korea's growth, analysts warn that going forward the sector faces tough challenges.

They said the disruption in Japan's supply chain may create problems for Korean manufacturers.

Japan is working hard to rebuild infrastructure after the widespread damage caused by the earthquake and tsunami last month.

That has seen some of the biggest manufacturers in Japan suspending or reducing production at their plants, resulting in a shortage of parts and components.

Analysts say that if the problem is not fixed quickly it could start to hurt production in Korean factories and have a negative impact on the country's growth.

"Given that our exporters depend heavily on parts imports from Japan, Japan's earthquake may disrupt parts supply... and slow exports growth," said Kim Yoon-Gee of Daishin Economic Research Institute

'External factors'

Supply chain disruptions are not the only concern for the Korean economy.

Analysts have warned that rising prices of fuel and other essential commodities could derail the country's economic growth.

"The focus is on oil and raw material prices, and inflation," said Mr Kim.

The unrest in North Africa and the Middle East has seen a surge in crude oil prices.

The increase in the cost of fuel for transport has driven up the price of food, as well as other commodities.

Analysts say these developments remain a big threat to the economy.

"External factors continue to remain a major growth risk," said Park Tae-Kun of Hanwha Securities.

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