SEOUL: South Korea's economy slowed substantially in the second quarter as a result of weakened domestic demand because of high prices of oil and raw materials, the central bank said Friday.

The Bank of Korea said the economy grew at an annual rate of 4.8 per cent in the three months to June, sharply down from 5.8 per cent for the previous quarter.

Soaring oil and raw material prices also brought the country's consumer inflation to a 10-year high of 5.5 per cent in June, the bank said, higher than its forecast earlier this month for 4.8 per cent.

Growth was also slightly lower than the bank's forecast.

For the whole of 2008, the bank this month cut its growth projection to 4.6 per cent from 4.7 per cent, citing global slowdown and soaring oil prices.

Exports of goods, which account for about 40 per cent of South Korea's gross domestic product, grew 3.7 per cent from the January-March period, after declining 1.8 per cent three months earlier.

But private consumption dipped 0.1 per cent, compared with a 0.4 per cent gain in the preceding quarter.

"Because of high prices (of goods) and the jobless rate, domestic consumption weakened in the second quarter, weighing down on the growth momentum," Choi Chun-Sin, a director of the bank, told reporters.

"But exports of goods remained strong, feeding the growth," he said.

The weaker growth figures may dent expectations that the central bank will raise a key rate to combat rising inflation as early as next month, Yonhap news agency said.

The central bank froze its key interest rate at five per cent for the 11th straight month in July on inflation woes.

- AFP/yb