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South Korea's economy grew a faster than expected 1.8 per cent in the first quarter thanks to a firm export performance and improved domestic demand, the central bank said Tuesday.

The quarter-on-quarter rise in gross domestic product was sharply higher than the 0.2 per cent increase in October-December, and beat the bank's prediction earlier this month of 1.6 per cent.

Compared to a year earlier, Asia's fourth-largest economy grew 7.8 per cent in January-March.

Exports rose 3.4 per cent quarter-on-quarter in January-March after falling 1.5 per cent in the fourth quarter. Private spending gained 0.6 per cent compared with 0.4 per cent.

Capital investment rose 1.5 per cent after advancing 5.3 per cent in the final quarter of last year, and construction investment rose 0.9 per cent after contracting by 0.1 per cent three months earlier.

The central Bank of Korea this month raised its full-year growth forecast to 5.2 per cent from 4.6 per cent. The finance ministry estimates 5 per cent.

The strong recovery has fuelled debate about the right time to raise the key interest rate, which has stayed unchanged at a record low of 2 per cent for 14 straight months.

Many analysts say an increase is unlikely in the first half. The new central bank governor Kim Choong-Soo is seen as close to the government, which opposes any early increase.

He has said the bank could consider raising the rate only after becoming confident that the private sector is making a sustainable recovery.

"With recovering exports, private demand is also picking up rapidly, which will help the overall economy to continue to grow firmly in the second quarter," Kim Jong-Su, an economist at NH Investment and Securities, told Dow Jones Newswires.

"But in the second half of this year, the growth momentum could slow on risks linked to a possible slowdown in the US and troubles in Europe."

AFP/il