South Korea grows at 2.7% in 2Q

South Korea has fared better than other Asian economies, and experts say reforms there are further along

By CNN's Alex Frew McMillan in Hong Kong

SEOUL, South Korea -- South Korea's economy grew at an annualized rate of 2.7 percent in the second quarter, the Bank of Korea said Tuesday.

That was below the bank's estimate of 3.3 percent growth and down from a rate of 9.7 percent the same time last year.

It was also the worst quarter for growth in more than three years.

But South Korean stocks got a boost on Tuesday as much-needed reforms there were getting a shove. The government is pushing ahead company sale talks with General Motors and insurance giant AIG.

Manufacturing shows greatest dip

The Bank of Korea attributed the second-quarter growth slowdown to weak exports and a decrease in capital investment.

COUNTRY PROFILE At a glance: South Korea Provided by CountryWatch.com    CNN.com Asia More news from our Asia edition

The manufacturing sector showed the greatest dip, with growth halved over the first quarter. South Korea managed a 3.7 percent rise then.

Experts still expect growth in economies like South Korea's, despite the world slowdown. Consumer spending was relatively strong.

Even a low rate of growth feels like a recession in Asia's fast-growing economies, though it doesn't meet the textbook definition of two quarterly drops.

Still, South Korea's numbers stack up nicely against places like Singapore, which is already in recession, and Taiwan, which on Friday reported a 2.35 drop in growth in the second quarter.

Reforms further ahead in Korea

Japan escaped a recession on a technicality last week. A revision showed it grew 0.1 percent in the first quarter, rather than the drop first shown. But experts say the second quarter will be dire.

In South Korea, dropping consumer confidence suggests a rough road ahead. Economists hope to see signs of recovery late this year.

The Bank of Korea has slashed its forecast for 2001 growth to 3.8 percent from 5.3 percent. It grew 8.8 percent in 2000 and 10.9 percent in 1999.

State think tank Korea Development Institute scaled back its take to 4 percent in July, from 4.3 percent.

But South Korea is faring better than many Asian economies because reforms there have pushed further ahead, experts say.

The International Monetary Fund faulted the original pace of change but has applauded recent efforts by President Kim Dae-jung's administration.

Stocks bounced back Tuesday on the back of good restructuring prospects.

In Seoul, the benchmark Kospi ended up 0.28 percent at 568.68. It dipped initially after the growth figures came out.

Officials are pushing to resolve a bid by General Motors for bankrupt Daewoo Motors by the end of August. If GM backs off, officials say they will commission outside managers to run the car company, South Korea's third-largest.

GM is thought not to be keen to take on Daewoo's aging Bupyong plant, which dates to 1972. It has been the hotbed of labor unrest in South Korea, where Daewoo's unions promise to make life difficult for GM if it doesn't take on the plant.

Korea Exchange Bank has tried to persuade GM to take it on. On Monday, Korea's No. 1 carmaker, Hyundai Motors, said it had no interest in buying the plant.

Daewoo Motor Sales, the traded affiliate of bankrupt Daewoo, ended Tuesday up 3.0 percent at 3,595 won.

South Korea's finance minister Jin Nyum also says a deal is imminent to sell Hyundai Securities and other finance affiliates to the insurer American International Group, or AIG.

Those talks have dragged on for a year. The GM negotiations have also been protracted.

But Jin has said he wants final decisions soon, to remove any lingering uncertainties from the stock market.