S. Korea GDP rebounds thanks to exports, govt spend
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.
Thursday’s Bank of Korea GDP report showed the economy expanded 1.1 per cent in the first quarter, rebounding after contracting by 0.2 per cent in the fourth quarter and beating the 1 per cent forecast in a Reuters poll.
Export volumes, particularly for memory chips and other IT products, gained 4.4 per cent and added to growth.
The upbeat data drove the benchmark Kospi index 1.1 per cent higher as of 0552GMT, while yields on 10-year treasury debt fell to 2.754 per cent from 2.762 per cent on Wednesday’s close.
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 per cent from the previous quarter.
The service sector grew 0.9 per cent on-quarter, but output of food and lodging services declined 0.9 per cent 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 Kyu-il, a director general at the Bank of Korea. “People also went out less due to the cold wave and fine dust issues.”
Chung said 4.1 per cent growth in service sector output from ‘cultural activities’ reflects a boost from the Winter Olympics, reversing the service sector’s 1.8 per cent fall in the fourth quarter.
In annual terms, GDP rose 2.8 per cent in the first quarter, on par with a 2.8 per cent rise in the fourth quarter. Government spending rose 2.5 per cent and posted the fastest quarterly gain in 6 years, thanks to higher spending on healthcare.
“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 per cent 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 US and China and its potential fallout.
According to market research firm GfK, global smartphone demand fell 2 per cent to 347 million units in the first quarter of 2018. Demand was especially sluggish in China and North America, it said. —