(Updated with details and comments)

South Korean economy recovered faster than expected in the first quarter, gaining 1.6 percent from the previous quarter on enlivened corporate and consumer spending backed by government stimuli and setting stage for annual growth return to pre-Covid-19 pace.

The country’s gross domestic product (GDP) increased 1.6 percent, extending the on-quarter growth streak of 1.2 percent in the fourth quarter and 2.1 percent in the third after back-to-back contraction in the earlier half of Covid-19 year of 2020, according to a preliminary data announced by the Bank of Korea on Tuesday. The GDP grew 1.8 percent on year in the first quarter.

The markets responded lukewarmly to the better-than-expected scorecard. The benchmark Kospi closed Tuesday down 0.07 percent at 3,215.42. The Korean won finished up 0.25 percent at 1,110.4 against the U.S. dollar.

The first-quarter recovery exceeded expectations of a growth of around 1.3 percent as private spending rose 1.1 percent versus a 1.5 percent fall in the last quarter. Government spending on the back of record fiscal budget increased 1.7 percent on quarter, while facility investment jumped 6.6 percent after a 2.0 percent fall in the last quarter.

The government was buoyant.

“The economy will exceed earlier forecast of 3.2 percent to grow 3.5 percent or higher this year,” deputy prime minister and finance minister Hong Nam-ki wrote in his Facebook page, echoing central bank governor Lee Ju-yeol’s prediction of annualized GDP growth at minimum 3.5 percent.

Since the GDP contracted 1.0 percent last year under the Covid-19 hammer, Korea would be returning to average growth rate of 2.0 to 3.2 percent over the previous three years when counting out the base effect.

In the first quarter, the country’s real gross domestic income added 1.8 percent from a quarter earlier and 3.4 percent from a year ago.

Exports added 1.9 percent on quarter, easing from 5.4 percent growth in the previous quarter. Imports gained 2.4 percent, faster than previous quarter’s 2.2 percent.

Net export contribution to GDP growth reversed to negative 0.2 percentage point from previous quarter’s positive 1.4 percentage points, as imports expanded faster than exports. This ate into private consumption’s 0.5 percentage-point contribution to GDP growth. Government spending contributed 0.3 percentage points.

Manufacturing output expanded 2.8 percent, easing from 3.0 percent growth a quarter earlier. Service sector output added 0.8 percent, slightly up from the previous quarter’s 0.7 percent.

The Korean government will release the revised economic growth forecast and the second-half policy direction in June.

By Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]