South Korea’s GDP growth rebounds

SEOUL: South Korea’s economy bounced back last quarter, buoyed by booming exports of data memory chips and a boost from government spending, although private consumption was sluggish.

The Bank of Korea GDP report showed the economy expanded 1.1% in the first quarter, rebounding after contracting by 0.2% in the fourth quarter and beating the 1.0% forecast in a Reuters poll.

Export volumes, particularly f or memory chips and other IT products, gained 4.4% and added to growth.

The chip boom has offset soft domestic demand and the blow to tourism from diplomatic tensions with China over South Korea’s installation of a US THAAD missile defence system.

Private consumption, which accounts for about half of GDP, marked its slowest growth in a year, gaining a mere 0.6% from the previous quarter.

The service sector grew 0.9% on-quarter, but output of food and lodging services declined 0.9% even as South Korea hosted the Winter Olympics in PyeongChang in February-March.

“The food and lodging sector is still suffering from fewer Chinese tourists as part of the THAAD backlash,” said Chung Kyuil, a director general at the Bank of Korea.

“People also went out less due to the cold wave and fine dust issues,” he said.

Chung said 4.1% growth in service sector output from ‘cultural activities’ reflected a boost from the Winter Olympics, reversing the service sector’s 1.8% fall in the fourth quarter.

In annual terms, GDP rose 2.8% in the first quarter, on par with a 2.8% rise in the fourth quarter.

Government spending rose 2.5% and posted the fastest quarterly gain in six years, thanks to higher spending on health care.

“The expanded medical benefits boosted government spending, while surging shipments of memory chips are still supporting exports,” a Bank of Korea official said.

BMI Research, an arm of rating agency Fitch Group, said the economy would face headwinds from tepid job growth and a moderating manufacturing sector.

“The cyclical expansion in the manufacturing sector will likely cool amid slowing demand from the global tech cycle,” it said in a note.

“Furthermore, we believe that private consumption will likely be subdued amid a persistently high youth unemployment rate and elevated household debt levels.”

The central bank expects the economy to expand 3% this year, but that estimate is subject to global demand for South Korean memory chips and other manufactured goods in the face of a feared trade war between the United States and China and its potential fallout.