KONTAN.CO.ID - SEOUL. South Korea's government spending surge helped the economy post its fastest quarterly growth in more than two years but sagging exports and global trade tensions pulled the annual reading to its lowest level since 2009.

The slowdown seen last year comes as President Moon Jae-in's administration boosts fiscal spending and as the Bank of Korea mulls further stimulus to shield the economy from the global slowdown.

Gross domestic product increased by a seasonally adjusted 1.2% in the fourth quarter from three months earlier, the BOK said on Wednesday, the fastest expansion since the third quarter of 2017 and outperforming the median estimate of 0.8% in a Reuters survey.

"Government spending definitely was a boost as exports was a drag," said Park Chong-hoon, an economist at Standard Chartered Bank in Seoul. "The prospect for exports is better this year with the U.S.-China signing of the trade deal, and as China continues with its expansionary fiscal policies."

Robust government spending on public infrastructure combined with better private consumption improved growth in the fourth quarter, but that did little to help exports, which made no contribution to the 1.2% expansion.

In the fourth quarter, private consumption increased 0.7% from three months earlier while construction investment jumped 6.3%.

Exports declined 0.1% in volume terms, reflecting the extended slump in shipments, which declined for a 13th consecutive month through December in year-on-year terms.

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For the whole of 2019, the economy grew 2.0%, the slowest pace in 10 years and matching the central bank's projection.

"Of the 2%, the net government contribution to growth came to 1.5 percentage points, the biggest portion since 2009 but that didn't change the fact that it was a hard year for Korea in terms of exports," a central bank official said.

In a press briefing held after the GDP release, another BOK official said the outbreak of a virus from central China has emerged as a fresh risk that could hurt consumer spending.

"With the case of the Middle East Respiratory Syndrome, people didn't go out much and traveled less, so spreading of the new virus may shrink consumption in that regard," Park Yang-su, a director general at the BOK, said in response to a question about the virus.

South Korea in 2015 drew up a supplementary budget to help the economy cope with the effects of the outbreak of the MERS.

The virus in China, originating in the central city of Wuhan at the end of last year, has spread to Beijing, Shanghai and elsewhere, with cases also confirmed in Thailand, South Korea, Japan and Taiwan. Six people in Wuhan have died.

Editor: Wahyu T.Rahmawati