South Korea’s economy slowed in the first quarter as sluggishness in exports weighed on corporate investment and consumers cut back on spending.
GDP rose 0.4 percent from the fourth quarter of last year, the Bank of Korea said yesterday.
The pace of economic growth slowed even as the government front-loaded fiscal spending and resumed consumption tax discounts on cars.
The central bank cut its GDP forecast for this year to 2.8 percent on April 19, citing weakness in the first three months of the year.
The economy should be on the road to gradual improvement this quarter, Bank of Korea Governor Lee Ju-yeol said.
“South Korea’s growth is closely related with exports volume, which slumped earlier this year, also weighing on corporate investment,” NH Investment & Securities Co Seoul-based economist An Ki-tae said. “The decline in consumption looks mainly due to the base effect of spending gains in the previous quarter.”
Facilities investment fell 5.9 percent from the previous quarter, according to yesterday’s data, while exports dropped 1.7 percent. Private consumption decreased 0.3 percent. Government spending was up 1.3 percent and construction investment grew 5.9 percent.
Facilities investment fell in the machinery and transportation equipment sectors and slower investment might weigh on future production, Bank of Korea general director Jeon Seung-cheol said.
Consumption declined as the government suspended consumption-tax discounts earlier this year before resuming them in February, and there was also a base effect from spending gains in the fourth quarter of last year, he said, adding that consumption is showing recovery from last month because of new products released in the automobile and mobile-phone sectors.
South Korea’s exports have fallen for 15 consecutive months and are poised to decline again this month, based on April 1 to Wednesday last week figures released by the customs office. However, policymakers have started to point to some positive signals for the economy, such as an improvement in factory output data.
South Korean Minister of Finance Yoo Il-ho said in an earlier interview that South Korea has room to lower borrowing costs and issue more debt if such expansionary policies are needed to help the economy achieve its 3.1 percent growth target.
Economists are almost evenly split over the odds for a rate cut this year, with 12 of 23 surveyed by Bloomberg expecting at least one reduction.
Ten forecast no change, while Moody’s Analytics Inc was the only forecaster to predict a 25 basis-point increase.
Citigroup Inc yesterday wrote in a report after the GDP release that while it expects a rate cut by the central bank in the third quarter, it would not be surprised if this comes earlier given drags on domestic demand and the government expediting corporate restructuring in fragile sectors.
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