South Korea’s economy likely saw steady economic growth in Q1: Reuters poll

By Thomson Reuters Apr 22, 2024 | 8:37 PM

By Veronica Dudei Maia Khongwir

BENGALURU (Reuters) – South Korea’s economy likely grew 0.6% last quarter, maintaining the same pace of expansion as in the previous three months, as improving exports offset weakening household consumption, a Reuters poll of economists found.

The trade-dependent economy experienced a notable uptick in export performance last quarter, buoyed by a resurgence in the semiconductor sector, a good indicator of global trade health.

Gross domestic product (GDP) for the January-March period grew 0.6% quarter-on-quarter on a seasonally adjusted basis, according to the median forecast of 21 economists in the April 17-22 poll, the same as the previous quarter. Forecasts ranged from 0.3% to 1.1%.

“Consumer demand remains a weak point. Retail sales data from January and February point to continued weakness in spending. We expect further softening as elevated interest rates and the cooling labour market weigh on demand,” wrote Gareth Leather, senior Asia economist at Capital Economics.

“In contrast, manufacturing and exports have remained strong, helped by an increase in global demand for semiconductors. We expect exports to remain buoyant – although global growth is likely to struggle in the near term, a turn in the tech cycle should ensure that export growth holds up well.”

On a year-on-year basis, GDP was expected to have expanded 2.4% last quarter, according to the median forecast of 25 economists, faster than the 2.2% growth in the preceding quarter.

If realized, that would be the fastest growth rate since Q3 2022.

However, uneven growth in China, South Korea’s biggest trading partner and a key driver of the global economy, could disrupt the ongoing recovery.

Moreover, Asia’s fourth-largest economy, one of the most indebted in the world, has experienced subdued growth due to spending being restrained by a cumulative 300 basis points of interest rate hikes by the Bank of Korea (BOK) since August 2021.

The central bank has said it needs to see inflation moving towards the bank’s 2% target before considering lowering borrowing costs, which will prolong the pressure on already slowing consumption. Inflation was 3.1% in March.

(Reporting by Veronica Dudei Maia Khongwir; Polling by Anant Chandak and Milounee Purohit; Editing by Jonathan Cable and Hugh Lawson)