South Korea Economy Shrinks More Than Expected in First Quarter
GDP shrank 0.4% in the first quarter from the previous three months, the worst performance since the global financial crisis.
(Bloomberg) -- South Korea’s economy contracted more than expected in the first quarter as exports and construction investment were downgraded from initial estimates. Inflation ticked higher in May.
Gross domestic product shrank 0.4% in the first quarter from the previous three months, the worst performance since the global financial crisis. That compares with economists’ median estimate of a 0.3% contraction, the same as the central bank’s first estimate in April.
Consumer prices in May rose 0.7% from a year earlier, compared with economists’ forecast of 0.8%.
Key Insights
- South Korea’s trade-dependent economy has been battered by falling exports, but the Bank of Korea said last week that the economy will recover in the second half of the year and expand 2.5% in 2019, in line with its April projection.
- Korean exports tumbled a worse-than-expected 9.4% in May, a sixth-straight drop, as slowing global growth and a downturn in the semiconductor industry take a toll on Asia’s fourth-largest economy. A reading of manufacturing sentiment also signaled ongoing pain.
- "The most important thing is semiconductor prices, which continue to fall, and that implies any recovery in demand will be difficult even in the second half,” said Park Chong-hoon, an economist at Standard Chartered Bank in Seoul.
- Inflation fell to the lowest level in two and a half years in March. The central bank said inflation will remain below 1% for some time before rising to the low- to mid-1% level in the second half of the year, with risks to the downside.
- BOK Governor Lee Ju-yeol said demand-driven inflationary pressures were low but market concerns over the risk of deflation are excessive.
What Bloomberg’s Economist Says
"The BOK so far has seemed to look through the softness in consumer prices, attributing it to government-administered price controls. But some policy board members have begun to express concern. Earlier this month, for example, board member Cho Dong-chul, a known dove, said it was nearing the time to worry about inflation being ’excessively low.’"
--Justin Jimenez, economist
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- GDP expanded 1.7% in the first quarter from a year earlier, versus 1.8% previously estimated by the central bank.
- Consumer prices rose 0.2% from a month earlier, versus a projected 0.4% rise.
- Core CPI rose 0.8% from a year earlier.
- Prices of petroleum goods and services continued to be steady, limiting the rise in inflation on year, the finance ministry said in a statement.
To contact the reporter on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net
To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Henry Hoenig, Paul Jackson
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