South Korea’s economy decelerated to a more measured pace last quarter following an outbreak of the Omicron variant of SARS-CoV-2 and a jump in commodity prices, while the nation remained on track for a further tightening of monetary policy.
GDP advanced 0.7 percent from the final three months of last year, when it expanded 1.2 percent, Bank of Korea data showed yesterday.
That slightly exceeded economists’ estimates, as did the economy’s 3.1 percent annual gain.
Photo: Heo Ran, Reuters
Inflation topped 4 percent last month for the first time in more than a decade.
The central bank said it expects prices to stay above its target of 2 percent this year, while estimating that the economy would grow less than previously forecast.
Economists expect the Bank of Korea to raise interest rates further amid rising inflation, having already hiked twice this year.
“Policy normalization is likely to stay on track,” said Yoon Yeo-sam, an analyst at Meritz Securities Co in Seoul. “The worry is the second half with inflation spilling into wages and putting pressure on businesses. The [COVID-19] lockdowns in China and Europe’s geopolitical risks are additional concerns.”
Economists had expected consumption would take a hit in the first quarter due to virus cases among South Korea’s 50 million people reaching all-time highs.
South Korean President Moon Jae-in’s administration responded with its first extra budget of the year to minimize the economic hit, while reworking the quarantine strategy around the concept of living with the virus rather than toughening restrictions.
The policies might be paying off.
Bank of Korea board member Joo Sang-yong said earlier this month that consumption appeared to be picking up from the middle of last month.
Meanwhile, the rise in virus cases has slowed in the past few weeks.
The momentum appears set to last into this quarter, with social distancing eased and exports holding up, Yoon said.
Still, higher commodity prices are set to weigh on demand at home and abroad, while a slowdown in China’s economy might crimp orders for South Korea’s exports.
The GDP data showed that investment in facilities and construction led the deceleration in economic growth, with the former declining by 4 percent.
About two-thirds of construction materials recorded price increases of more than 10 percent from the prior year in early this year, according to a central bank study published last month.
Overall prices increased 28.5 percent in the fourth quarter last year, underscoring the impact of higher commodity costs.
The GDP report also showed private consumption fell 0.5 percent, while government spending was unchanged.
Overseas shipments were also resilient, increasing 4.1 percent. Indeed, with export growth outpacing imports, the contribution of net exports to quarterly growth was 1.4 percentage points.
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