Foreign trade contributed nearly 90 percent of the 1.4 percent quarterly growth in gross domestic product (GDP) in the first quarter of 2011, while the hard-hit domestic construction sector contracted 6.1 percent from the prior quarter, central bank data showed.
South Korea's government is intervening to stem a rising won currency to protect its exporters and is considering measures to boost the domestic construction industry ahead of a flurry of elections next year.
Overall robust economic growth will allow the Bank of Korea to raise interest rates as early as next month for a fifth time since its current tightening cycle started last July, as it attempts to contain inflation that is running way ahead of its 4 percent target ceiling.
However, it is expectd to remain cautious about the extent of further hikes as higher borrowing costs could act as both a brake on economic growth and add to household debt in South Korea, which is already among the highest in the 34-member OECD (Organisation for Economic Co-operation and Development).
"I don't think the government will come up with measures strong enough to turn everything around, mainly due to concerns about heavy household sector debt," said Kim Yoon-gee, who heads the Daishin Economic Research Institute.
First-quarter growth was the fastest since the second quarter of 2010 and the a ninth consecutive quarterly expansion, coming in marginally above a 1.3 percent increase forecast in a Reuters poll.
Net exports lifted GDP by 1.2 percent while weak construction spending pulled it down 1.1 percent, Bank of Korea data showed, indicating Asia's fourth-largest economy would have expanded only 0.2 percent if not for exports.
Over a year earlier, GDP in the first quarter rose 4.2 percent, compared with the market's median forecast of 4.1 percent and following a revised 4.7 percent annual gain in the final quarter of 2010. (Reuters)
