South Korea economy grows faster than expected as investment, exports bounce

Asia's fourth-largest economy has continued to gain momentum after shrinking 1.0 per cent last year.
Asia's fourth-largest economy has continued to gain momentum after shrinking 1.0 per cent last year.PHOTO: REUTERS

SEOUL (REUTERS) - South Korea’s economic growth beat expectations in the first quarter, extending the country’s export-led recovery as global demand surged and the government maintained support for ailing small businesses.

Gross domestic product (GDP) grew a seasonally adjusted 1.6 per cent in the March quarter from three months earlier, the Bank of Korea said on Tuesday (April 27), faster than the median estimate of a 1.0 per cent growth in a Reuters poll and following a 1.2 per cent expansion in the December quarter.

Asia’s fourth-largest economy has continued to gain momentum after shrinking 1.0 per cent last year, its worst contraction since 1998, driven by heavy industries such as chip and electronic manufacturing, mostly for exports.

GDP expanded 1.8 per cent year-on-year in the January-March period after shrinking a revised 1.2 per cent three months earlier, also beating an expected expansion of 1.1 per cent.

“Economic growth is peaking this quarter and next, and the momentum is driven by strong capital investment and exports, as factories are racing to fill export orders,” said Park Sang-hyun, an economist at Hi Investment & Securities. “Second quarter growth will be just as strong.”

Underpinning the momentum, Hyundai Motor last week posted a near tripling of profit to a four-year high in the first-quarter as demand for its luxury cars soared.

Analysts expects profits to also have jumped significantly across South Korean chipmakers such as SK Hynix and Samsung Electronics when they announce first quarter earnings later this week.

The nation’s finance ministry said it expects the economy to grow slightly faster than 3.2 per cent, its earlier projection, as major economies including the United States stage rapid turnarounds and boost demand for Korean exports.

Growth was driven by exports and facility investment, which rose 1.9 per cent and 6.6 per cent quarter-on-quarter, respectively.

Private consumption grew a slower 1.1 per cent on-quarter, after shrinking 1.5 per cent in the previous three months.

In early April, South Korea stepped up restrictions amid fears of a potential fourth wave of Covid-19 outbreaks, with daily cases hitting three-month highs and the vaccination rate staying at just above 4 per cent. The low rate compares with 42 per cent in the United States.

The BOK flagged surging coronavirus cases as fresh downside risks to growth earlier this month, though it saw robust exports and a pickup in consumption continuing to power the economy.

BOK Governor Lee Ju-yeol said earlier in April that “mid-3 per cent” growth was “very possible” this year, up from a previous forecast for 3 per cent growth in 2021.

A Reuters poll on Friday showed economists expect South Korea’s economy to expand 3.4 per cent this year, its fastest annual growth in a decade.