South Korea's Q1 GDP expands at fastest in 3 quarters on exports, capital spending

People walking in the popular Myeongdong shopping district in Seoul.
People walking in the popular Myeongdong shopping district in Seoul. PHOTO: AFP

SEOUL (REUTERS) - South Korea's economy accelerated at a faster than expected pace in the first quarter on strong exports and capital investment, in a hopeful sign it will have enough buffers to counter a host of political and economic challenges in the months ahead.

The strong start to the year will be a relief for policymakers after months of downturn from a political crisis and as the country prepares to elect a new president in May amid rising tensions with neighbours North Korea and China.

Gross domestic product grew a seasonally adjusted 0.9 per cent in the first quarter, the Bank of Korea said on Thursday (April 27), accelerating from a 0.5 per cent quarterly expansion in the final three months of last year.

It was the fastest pace since the second quarter of 2016 when the economy logged 0.9 per cent growth. The median forecast in a Reuters survey was for a 0.7 per cent expansion.

From a year earlier, GDP rose 2.7 per cent in the first quarter, the fastest pace since 3.4 per cent growth in the second quarter of 2016.

Facility investment led overall growth with a 4.3 per cent gain on quarter, while exports gained 1.9 per cent after declining 0.1 per cent a quarter earlier.

Private consumption grew 0.4 per cent from the previous quarter, accelerating from 0.2 per cent in the last quarter of 2016.

Construction investment growth leapt 5.3 per cent from three months earlier, as "apartment projects that boomed from a year earlier are still supporting economic growth," a finance ministry official said after the data was published.

Intellectual property investment fell 0.2 per cent on quarter.

Drawing up an extra budget wouldn't make sense anymore," said Stephen Lee, chief economist at Meritz Securities in Seoul. "We have to see who'll become president, but I think it would be better to focus on spending on next year's budget in order to improve the fundamentals of the economy."

Asia's fourth-largest economy will hold a presidential election on May 9 following the impeachment of ex-leader Park Geun-hye.

Leading democratic candidate Moon Jae-in has already promised an extra budget of at least 10 trillion won (S$12.35 billion) although incumbent Finance Minister Yoo Il-ho said additional fiscal stimulus may not be necessary as the economy is improving.

The BOK upgraded its growth outlook to 2.6 per cent for this year from 2.5 per cent when it kept interest rates unchanged at a record low of 1.25 per cent on April 13.

Governor Lee Ju-yeol then said better-than-expected economic conditions from improving exports had brightened the outlook, but remained wary of geopolitical risks from North Korea.