South Korea economy averts recession but faces tough headwinds

9:56 pm Monday, April 24th, 2023

By Choonsik Yoo and Jihoon Lee

SEOUL (Reuters) -South Korea’s heavily trade-reliant economy barely averted a recession posting slim growth in the first quarter, but the outlook remained clouded by weak exports due to a cooling global economy, even with China’s reopening.

South Korea’s gross domestic product (GDP) in the first quarter expanded by 0.3% over the previous three-month period, official advance estimates showed on Tuesday, compared with a median 0.2% rise tipped in a Reuters survey.

Still, economists saw it as little more than a technical rebound after a 0.4% contraction during the final quarter of 2022, which was the first decline in 2-1/2 years, and reinforced their view that the central bank’s tightening cycle is over.

“I don’t see any sign of strength from the detailed figures about the future path of the economy,” said Oh Suk-tae, economist at Societe Generale Securities in Seoul, adding he retains his forecast for 0.8% growth for the whole year.

The biggest contributor to GDP during the first quarter was private consumption, posting growth of 0.5%, while capital investment dented economic growth, dropping 4.0%. Exports rose 3.8%, while imports grew 3.5%.

There is high uncertainty both externally and internally, but a recovery in the IT sector and the Chinese economy is likely to stoke a rebound in the second half of the year, a central bank official said at a media briefing. 

The Bank of Korea said earlier this month that this year’s economic growth would be weaker than its earlier projection of 1.6%, as the central bank left interest rates steady for the second consecutive meeting in a row.

Economists now expect the Bank of Korea not to hike interest rates further after having raised them by 300 basis points since late 2021.

Over a year earlier, the country’s gross domestic product (GDP) expanded 0.8% during the January-March period, according to the Bank of Korea’s estimates, compared with gains of 1.3% in the prior quarter and 0.9% tipped in the survey.

(Reporting by Jihoon Lee and Choonsik Yoo; Editing by Sonali Paul)