South Korea economy averts recession but faces strong headwinds

SEOUL   -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 percent over the previous three-month period, official advance estimates showed on Tuesday, compared with a median 0.2 percent rise tipped in a Reuters survey.

Still, economists saw it as little more than a technical rebound after a 0.4- percent 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 percent growth for the whole year.

The biggest contributor to GDP during the first quarter was private consumption, posting growth of 0.5 percent, while capital investment dented economic growth, dropping 4 percent. Exports rose 3.8 percent, while imports grew 3.5 percent.

The Bank of Korea said earlier this month that this year’s economic growth would be weaker than its earlier projection of 1.6 percent, 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 percent during the January-March period, according to the Bank of Korea’s estimates, compared with gains of 1.3 percent in the prior quarter and 0.9 percent tipped in the survey.

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