Photographer: SeongJoon Cho/Bloomberg

South Korean Economy Rebounds as Exports, Investment Improve

  • GDP growth beats estimates, rising 0.9 % q/q and 2.7% y/y
  • Expansion of 0.9% is fastest pace since second quarter of 2016

South Korea’s economic growth accelerated in the first quarter as a recovery in exports supported investment. Construction investment expanded, while consumption growth remained subdued.

Key Points

  • Gross domestic product expanded 0.9 percent in the first quarter from the previous three months, when it rose 0.5 percent, the Bank of Korea said on Thursday.
  • The median estimate of economists surveyed by economists was for 0.8 percent growth.
  • From a year earlier, growth was 2.7 percent, compared with the estimate for 2.6 percent gain by economists.

Big Picture

Positive signs for the economy are becoming more apparent, less than two weeks before Koreans go to the polls to elect a new president. The central bank and the International Monetary Fund both raised their projections for the nation’s growth this year, and Finance Minister Yoo Il-ho has said expansion may exceed the government’s 2.6 percent projection. Exports are expected to increase for a sixth month in April, and consumer sentiment has rebounded close to levels seen before the political scandal erupted late last year.

Still, headwinds persist, with uncertainties surrounding U.S. policies and tensions with China over the U.S. missile-defense system. A drop in the number of Chinese visitors to Korea and the impact of this on tourism-related spending may put pressure on second-quarter growth.

Economist Takeaways

  • The economy will continue to improve, but the pace will be slower than the first quarter because exports are unlikely to post such high growth once base-effects disappear, and domestic demand remains weak, said Kim Doo-un, an economist for Hana Financial Investment in Seoul.
  • Second and third-quarter growth will slow to around 0.5 percent, but there could be a rebound in the fourth quarter on new government’s stimulus policies, Kim said.

The Detail

  • The better-than-expected data is due to the good performance of exports and production, which in turn supported facilities investment, Chung Kyu-il, a director general for BOK, said in briefing.
  • There was an expectation that construction investment wouldn’t be so good in first quarter, but fine weather accompanied with government’s budget implementation supported construction, Chung said.
  • Gains in private consumption and the services industry were mild due to China’s restriction on trips to Korea, weakness in consumer sentiment and consumers delaying purchase of mobiles phones, Chung said.
  • Exports as measured in GDP increased 1.9 percent in the first quarter from the previous three months, when they fell 0.1 percent.
  • Facilities investment expanded 4.3 percent as construction investment increased 5.3 percent.
  • Private consumption was up 0.4 percent, while government spending rose 0.5 percent.
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