News Apr 27

South Korean economy powers ahead amid Covid-19 resurgence

GDP expanded 1.8% year-on-year in the January-March period after shrinking a revised 1.2% three months earlier, and also beating an expected expansion of 1.1%

South Korean economy powers ahead amid Covid-19 resurgence
Seoul residents watch a broadcast of the Academy Awards in Los Angeles on Monday featuring veteran South Korean actress Youn Yuh-jung, who won the best supporting actress Oscar for the US film "Minari". Photo: Reuters 

(ATF) South Korea's economic recovery beat expectations in the first quarter, extending an export-led recovery and following another victory for its cultural sector at the Academy Awards.

Gross domestic product (GDP) grew a seasonally adjusted 1.6% in the March quarter from three months earlier, the Bank of Korea (BOK) said on Tuesday.

That was faster than the median estimate of a 1% growth in a Reuters poll and following a 1.2% expansion in the December quarter.

The growth rate “proves the economy’s ability to recover is relatively solid,” Finance minister Hong Nam-ki wrote on Facebook.

Asia's fourth-largest economy has continued to gain momentum after shrinking 1% last year - its worst contraction since 1998 - driven by semiconductor and electronic manufacturing.

GDP expanded 1.8% year-on-year in the January-March period after shrinking a revised 1.2% three months earlier, also beating an expected expansion of 1.1%.

"South Korea’s economic recovery regained momentum and loose fiscal policy and strong export demand should continue to support the recovery over the coming quarters," Alex Holmes, Asia economist at Capital Economics, said.

REBOUND DRIVER

The good economic news followed another cultural triumph for South Korean soft power, with veteran South Korean actress Youn Yuh-jung winning the Best Supporting Actress Oscar for "Minari", set among a Korean immigrant family in the US in the 1980s. 

Youn's gong follows the best director and best picture Oscars won by Bong Joon-ho and "Parasite" last year.

Stronger facilities investment was the main driver of the rebound, rising by 6.6% quarter-on-quarter and pushing overall investment up by 2.3%. "Strong external demand has led South Korean firms to invest in more capacity and exports went from strength to strength last quarter, rising a further 1.9% quarter-on-quarter," Holmes said.

"As vaccines are rolled out in major economies and global consumption patterns switch back to normal, we expect demand for IT products, which have benefitted from the shift to home working, to soften. But in the near-term at least, shortages of semiconductors suggest export demand will remain strong," he added.

The retail sector has become more resilient to virus outbreaks, but the hospitality and leisure sectors remain very weak. "Output in these sectors is still only around 60% of its pre-crisis level," Holmes said.

The main weakness of the economy is coming from consumption, analysts said with spending was still down by almost 6% compared to its pre-pandemic level.

JAB TARGETS

Social distancing measures are likely to remain a drag on activity until the country reaches herd immunity, which according to the government’s vaccination targets will not be until November at the earliest.

On Tuesday, South Korea recorded more than 500 new Covid-19 cases for the second successive day. Testing has been reduced as the country accelerates a vaccine rollout amid woes over another wave of the pandemic.

The average number of daily infections in the past week neared 700 as cluster infections and untraceable cases continued to grow amid increased social activities due to warmer weather.

There were three additional deaths from the virus, raising the total to 1,820 and putting the fatality rate was 1.52%.

"The big unknown is: Can Korea keep on top of its Covid-19 cases while its vaccination rollout struggles to get going," Robert Carnell, head of Asia-Pacific research at ING, said. "If it does, then 4% growth is achievable."

With reporting by Reuters

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