Korea’s Q1 GDP expands 0.3% on improved private spending

[Photo by Yonhap]

The South Korean economy grew 0.3 percent in the first quarter from the previous quarter led by increased private spending after all Covid-19 social distancing rules were lifted, but the trade deficit from sluggish exports continued to pose a sluggish outlook for the economy.

According to preliminary data announced by the Bank of Korea on Tuesday, the country’s real gross domestic product (GDP) gained 0.3 percent in the first quarter from the previous quarter.

Korea’s economy shrank in the first two quarters of 2020 after the outbreak of Covid-19 but it managed to expand for 9 straight quarters from the third quarter of 2020 to the third quarter of last year. The economy, however, shrank in the fourth quarter by 0.4 percent due to sluggish exports, before rebounding in the first quarter of this year.

The main Kospi fell 0.59 percent to 2,508.57 on Tuesday morning and the Kosdaq 2.02 percent to 837.95.

The U.S. dollar was trading at 1,335.6 won, up 0.6 won from the previous day.

The growth in the first-quarter economy was driven mainly by private consumption that gained 0.5 percent on strong demand for entertainment and services.

Construction investment also increased 0.2 percent in the first quarter from the previous quarter with the expansion of building construction. Government spending also rose 0.1 percent on increased spending on in-kind social security benefits.

Facility investment, on the other hand, declined 4 percent on the sluggish machinery sector, including semiconductor equipment.

Exports gained 3.8 percent in the first quarter from the previous quarter on growing demand for transportation equipment including cars. Imports also rose 3.5 percent on a jump in chemical product imports.

Private spending accounted for 0.3 percentage point of the entire first-quarter growth, which indicates that it played a critical role in driving up the growth rate in the first quarter.

Net exports, in contrast, contributed to a decline of 0.1 percentage point.

Manufacturing output grew 2.6 percent in the first quarter. Service output, however, retreated 0.2 percent. Electricity, gas, and water supply output also fell 2 percent and agriculture, forestry, and fisheries output 2.5 percent.

The real gross domestic income (GDI) gained 0.8 percent in the first quarter, exceeding 0.3 percent of real GDP.

Earlier in February, the central bank presented an annual growth rate forecast of 1.6 percent. Its monetary policy board, however, hinted that it may revise down the growth outlook next month, citing a lower projection than 1.6 percent for this year.