published Apr 25, 2018, 6:33:55 PM, by Jiyeun Lee
(Bloomberg) —

South Korea’s economy returned to growth in the first three months of this year, buoyed by an ongoing exports recovery and corporate investments. The expansion came after gross domestic product fell for the first time in almost a decade in the fourth quarter of 2017.

Key points

Gross domestic product expanded 1.1 percent in the first three months of this year from the previous quarter, when it decreased 0.2 percent, the Bank of Korea said on Thursday. This is in line with the growth expected by economists in a Bloomberg survey. The economy slowed in the last three months of 2017 due to a 10-day national holiday in October which distorted corporate spending patterns. From a year earlier, the economy expanded 2.8 percent, compared with the 2.9 percent median estimate of economists.

Big Picture

While the export sector has led the return to expansion, employment and consumption growth have been lackluster. Some of the expansion is probably due to the quarter-on-quarter comparison, with the contraction in 2017 making growth look bigger in Thursday’s data. The BOK and the government both expect 3 percent GDP growth this year. While the expansion could justify additional rate hikes, contained inflation will likely mean the central bank remains cautious about raising borrowing costs.

What Economists Say

“First-quarter data looks stronger than it actually is because the fourth quarter was unusually weak,” Oh Suk-tae, an economist for SG Securities Co., said before the release. “You need to wait until the second quarter to see if this is real momentum or not.” Oh, who sees 2.8 percent GDP growth for this year, said he withdrew his call for one more rate hike by the BOK in 2018 and now sees the central bank holding at 1.5 percent. “A base effect from the downturn in the fourth quarter, and export growth despite weakness in jobs and consumption, would’ve supported GDP in the first quarter,” Kim Doo-un, an economist for Hana Financial Investment, said before the release.

The Details

Exports as measured by volume in GDP increased 4.4 percent in the first quarter from the previous period, when it fell 5.3 percent. Infrastructure investment was up 5.2 percent and construction investment up 2.8 percent from the previous quarter, when both had contracted. Government spending increased 2.5 percent mainly due to a policy change that increased the government’s support for public health insurance. Private spending edged up 0.6 percent.

–With assistance from Myungshin Cho.To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net James Mayger, Henry Hoenig
COPYRIGHT
© 2018 Bloomberg L.P