Exports Drive South Korea's Return to GDP Growth in 1Q

(Bloomberg) -- South Korea’s economy returned to growth in the first three months of this year, buoyed by an ongoing exports recovery and corporate investment.

Key points

  • Gross domestic product expanded 1.1 percent in the first three months of this year from the previous quarter, when it contracted 0.2 percent, the Bank of Korea said on Thursday.
  • The growth figure matched the median forecast of economists in a Bloomberg survey.
  • From a year earlier, the economy expanded 2.8 percent, compared with the 2.9 percent median estimate of economists.

Big Picture

The export sector led the return to expansion, with growth reflected in Samsung Electronics Co.’s announcement Thursday that its earnings topped estimates, thanks to booming shipments of memory chips. The Bank of Korea and the government both expect 3 percent GDP growth this year. Yet employment and consumption have been lackluster, and contained inflation will likely mean the central bank remains cautious about raising borrowing costs.

Exports Drive South Korea's Return to GDP Growth in 1Q

Economist, Official Comments

  • “Private consumption growth was slower than I had expected, while construction and facilities investments outperformed my expectations,” said Lee Sang-jae, chief economist for Eugene Investment & Securities.
  • The property market is sure to slow and infrastructure investment won’t keep pace with last year’s expansion, so economic growth in 2018 will depend on a recovery in private consumption, Lee said. He added that he is sticking with his 3.1 percent GDP growth projection for now.
  • Construction investment was supported by increased housing transactions ahead of stricter property market regulations to be applied from April, Chung Kyu-il, a director-general at the BOK, said in a briefing.
  • A rebound in facilities investment was led by the ship-building, aircraft, semiconductor-manufacturing devices, and machinery sectors, Chung said.

The Details

  • Exports as measured by volume in GDP increased 4.4 percent in the first quarter from the previous period, when it fell 5.3 percent.
  • Infrastructure investment was up 5.2 percent and construction investment up 2.8 percent from the previous quarter, when both had contracted.
  • Government spending increased 2.5 percent mainly due to a policy change that increased the government’s support for public health insurance.
  • Private spending edged up 0.6 percent.
  • Some of the expansion is probably due to the quarter-on-quarter comparison, with the contraction in 2017 making growth look bigger in Thursday’s data.

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