(Bloomberg) -- South Korea’s economy recovered at a stronger pace than expected last quarter, as investment picked up with export growth, while consumption started to rebound.
Gross domestic product grew 1.6% during January-March from the previous quarter, the Bank of Korea said Tuesday, higher than the economists’ consensus for a 1.1% expansion. That pushed GDP above its level a year ago for the first time since the start of 2020.
Korea has been one of the better performers throughout the pandemic, thanks to strong overseas demand for its products ranging from chips to cars. BOK Governor Lee Ju-yeol said earlier this month he expects growth to reach mid-3% this year, higher than the 3% expected in February.
While Tuesday’s release supports Lee’s optimism, risks to the recovery are growing from worsening local outbreaks. Korea has found it more difficult to peg back fresh infections this year and inoculations are yet to start for the broader public. That suggests social distancing restrictions will remain stringent to tame outbreaks.
Key Insights
- “The delay in inoculation means if the virus flares up, like what we’re seeing now, social distancing rules will be tightened or remain tight,” said Stephen Lee, an economist at Meritz Securities in Seoul. Lee said the pace of consumption rebound will be “very slow,” even as exports hold up the overall outlook.
- Korea has administered more than 2 million doses so far for its population of about 52 million. Acting Prime Minister Hong Nam-ki said Monday that the country can achieve herd immunity by November as planned.
- Policies remains supportive, without a whiff of suggestions on tapering stimulus in official circles. A fifth extra budget since the start of the pandemic was passed in March, and a ruling party lawmaker last week floated the idea of a universal cash handout to boost consumption. The BOK’s Lee has repeatedly dismissed speculations of early tightening.
- The consensus for growth this year among private-sector economists is now 3.5%, up from 3.2% in early January.
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- From a year earlier, GDP increased 1.8%.
- From the previous quarter, private consumption rose 1.1%, while government spending was up 1.7%. Exports increased 1.9%, as facilities investment jumped 6.6%.
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