South Korea’s economy grew more than expected at the beginning of the year, providing the central bank with breathing room while also highlighting ongoing risks to growth.
GDP advanced 0.3 percent year-on-year in the first quarter, rebounding from the final three months of last year, when it contracted 0.4 percent, Bank of Korea (BOK) data showed yesterday.
The latest data compare with estimates for a 0.2 percent expansion in a Bloomberg survey of economists.
Photo: Bloomberg
The data would be a welcome sign for BOK officials who are trying to balance taming inflation with economic growth. The figures provide policymakers with more room for patience in setting policy.
Keeping its key rate unchanged this month for a second straight meeting, the central bank said that economic growth this year might be slightly below its earlier 1.6 percent forecast. At the same time, BOK Governor Rhee Chang-yong ruled out an interest rate cut before inflation showed clearer signs of easing.
Central bank officials told the news conference following the report release that they expect some improvement in growth by the end of the year, although the exact timing is uncertain. They highlighted that they see an eventual recovery in the chips sector, and would be watching equipment spending and construction closely for signs of improvement.
“The results were slightly stronger than expectations, but there is still a question mark over whether it will be sustained,” HI Investment & Securities Co economist Park Sang-hyun said. “Figures largely suggest the economy is still trying to find a bottom.”
There is also potential for the construction sector to sour further amid falling home prices, he said.
Domestic consumption improved in the January-March period, supporting growth.
Meanwhile, equipment spending weighed on the quarterly data, contracting the most in at least two years.
On an industry basis, manufacturing and healthcare rebounded from the fourth quarter. Sectors led by agriculture and transportation and storage declined in the period.
“Weak equipment spending suggests the IT [information technology] sector has yet to recover,” Ebest Investment & Securities Co analyst Woo Hye-young said. “The key things to watch going forward will include whether domestic consumption will continue recovering, and whether investments in equipment will turn to a plus soon.”
Meanwhile, inflation continues to stay elevated above the central bank’s 2 percent target, with prices up 4.2 percent last month.
Rhee said earlier this month that the central bank’s war on inflation was not over, despite early signs of cooling prices.
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