South Korea’s economy contracted more than expected in the first quarter as exports and construction investment were downgraded from initial estimates.
The country’s GDP shrank 0.4 percent in the first quarter from the previous three months, the worst performance since the global financial crisis.
That compares with economists’ median estimate of a 0.3 percent contraction, the same as the central bank’s first estimate in April.
South Korea’s trade-dependent economy has been battered by falling exports, but the Bank of Korea (BOK) last week said that the economy would recover in the second half of the year and expand 2.5 percent this year, in line with its April projection.
Exports last month tumbled a worse-than-expected 9.4 percent, a sixth-straight drop, as slowing global growth and a downturn in the semiconductor industry take a toll on Asia’s fourth-largest economy.
A reading of manufacturing sentiment also signaled ongoing pain.
“The most important thing is semiconductor prices, which continue to fall, and that implies any recovery in demand will be difficult even in the second half,” said Park Chong-hoon, an economist at Standard Chartered Bank in Seoul.
Inflation ticked higher last month, with consumer prices rising 0.7 percent from a year earlier, compared with economists’ forecast of 0.8 percent.
Inflation fell to the lowest level in two-and-a-half years in March.
The Bank of Korea said inflation will remain below 1 percent for some time before rising to the low- to mid-1 percent level in the second half of the year, with risks to the downside.
BOK Governor Lee Ju-yeol said that demand-driven inflationary pressures were low, but market concerns over the risk of deflation were excessive.
The BOK so far has seemed to look through the softness in consumer prices, attributing it to government-administered price controls, but some policy board members have begun to express concern.
Earlier this month board member Cho Dong-chul, a known dove, said it was nearing the time to worry about inflation being “excessively low.”
GDP expanded 1.7 percent in the first quarter from a year earlier, versus 1.8 percent previously estimated by the central bank, while consumer prices rose 0.2 percent from a month earlier.
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