(ATTN: UPDATES with analyst's comments)

By Kim Kwang-tae

SEOUL, Oct. 26 (Yonhap) -- South Korea's solid economic recovery in the third quarter is expected to help Asia's fourth-largest economy achieve at least 3 percent growth this year, officials and analysts here said Thursday.

In the July-September period, the country's gross domestic product (GDP) increased 1.4 percent from the previous quarter, faster than the preceding 0.6 percent on-quarter gain, according to preliminary data by the Bank of Korea (BOK).

The on-quarter growth is the fastest since the second quarter of 2010, when the economy shot up 1.7 percent, the central bank said in a statement.

The third quarter growth suggests that South Korea is almost certain to meet or surpass the government's growth target.

The BOK forecast country's annual economic growth may reach 3.15 percent if the economy expands only 0.20 percent in the fourth quarter. An economic growth of 0.92 percent in the October-December period would translate to annual increase of 3.35 percent, according to the BOK.

Earlier this month, the BOK raised its growth outlook for the country's GDP to 3 percent for 2017, up 0.2 percentage point from the central bank's estimate released in July.

The International Monetary Fund also recently adjusted South Korea's gross domestic product growth to 3 percent, up 0.3 percentage point from its previous estimate in April, citing the general recovery in global trade.

The third quarter growth was driven by exports and government spending.

Exports -- one of the major pillars for the South Korean economy -- grew a solid 6.1 percent in the third quarter from three months earlier. The latest outbound shipments marked the highest since the first quarter of 2011, when exports advanced 6.4 percent from the last three months of 2010.

Containers waiting to be shipped at South Korea's main sea port of Busan. (Yonhap)

In September, South Korea's exports came to US$55.1 billion thanks mainly to strong demand for semiconductors and displays, up from $40.8 billion tallied a year earlier, according to the government data.

The country's exports have been on a steady rise since November led by an upturn in oil prices and global economic recovery that has fueled demand for locally made goods.

Government spending increased by 2.3 percent in the third quarter, the highest since the first quarter of 2012, when it came to 2.8 percent, according to the BOK.

"Exports and a spike in government spending had a big contribution to the economic growth rate in the third quarter," said Lee Chang-sun, a senior researcher at the LG Economic Research Institute.

He, however, said the North Korea geopolitical risk and South Korea's diplomatic row with China could be factors that could affect fourth quarter growth.

China -- South Korea's largest trading partner -- has carried out a series of economic retaliations against Seoul in protest of the deployment of an advanced U.S. defense system in South Korea.

Other economists have cited growing protectionist trends in the United States that could adversely affect South Korean exports.

A possible 3 percent economic growth could increase the likelihood that the BOK raises its key interest rate.

Veasna Kong, an economist in the Sydney office of Moody's Analytics, said GDP growth likely peaked in the third quarter from a cyclical point of view, but economic conditions have clearly improved.

"The outlook is quite positive, so the BOK is edging closer to a rate hike," Veasna said in an email to Yonhap News Agency. "Inflation is expected to stay relatively subdued, and the central bank will be wary of undermining the burgeoning recovery in consumption, so rate hikes will probably come into view by mid-2018."

   He also said the government's pro-jobs agenda and expansionary fiscal stance could lead to faster than expected rate hikes next year.

Choi Un-sun, a senior manager of Principal Investment Department at Cape Investment & Securities Co., said the third quarter GDP growth rate that exceeds South Korea's potential growth rate "appears to be a factor that could nudge the BOK to raise the key rate, together with an increase in consumer prices."

   He said a looming U.S. rate hike could urge Seoul to follow suit to stave off potential capital flight. South Korea's interest rate is currently at an all-time low of 1.25 percent.

Last week, the BOK kept its policy rate unchanged, although it hinted of possible adjustments moving forward.

BOK Gov. Lee Ju-yeol said the market conditions are "somewhat ripe" for the central bank to gradually tighten its monetary easing stance, a remark that has been interpreted as a move towards a rate hike in the near future.

In June, Lee said the central bank may take a monetary tightening approach if the economy shows signs of robust recovery.

entropy@yna.co.kr

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