South Korea’s economy recovered at a stronger pace than expected in the last quarter on robust exports and brisk facility investments, returning Asia’s fourth-largest economy to pre-pandemic levels.
Gross domestic product grew by a seasonally adjusted 1.6 per cent in the January-March period from the previous quarter, the Bank of Korea said on Tuesday. It was faster than the median estimate of a 1.0 per cent growth in a Reuters poll and followed the 1.2 per cent growth recorded in the December quarter.
The economy regained momentum after shrinking 1.0 per cent last year, its worst contractions since the 1998 Asian financial crisis. This month, BoK governor Lee Ju-yeol forecast economic growth this year at around 3.5 per cent, which will be its fastest annual growth in a decade.
The growth rate “proves the economy’s ability to recover is relatively solid,” finance minister Hong Nam-ki said on Facebook, although the weak job market remained a concern.
The strong recovery has been driven by robust global demand for chips and cars, South Korea’s main export items, while domestic consumption remained sluggish due to stringent distancing measures.
“Strong external demand has led Korean firms to invest in more capacity and exports went from strength to strength last quarter,” said Alex Holms, an economist at Capital Economics. “The main weakness of the economy is coming from consumption.”
Lee has flagged surging coronavirus infections as fresh downside risks to growth as South Korea grapples with daily cases hitting three-month highs.
Economists have also cautioned that a slow vaccine rollout could derail the economic recovery, with the country’s vaccination rate staying at just above four percent, compared with a 42 per cent in the US.
A consumption recovery is likely to be limited until the majority of South Korea’s 52m population gets vaccinated, economists say.
South Korea aims to achieve herd immunity by November but its vaccination drive has been hampered by delayed shipments of Covid-19 vaccines.
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