Korea skyline

Korea GDP Q1 2021

Korea: Economy records quickest growth since Q4 2019 in Q1, reaching pre-pandemic levels

According to a preliminary reading, economic activity rebounded in the first quarter. GDP increased 1.8% year-on-year, contrasting the 1.2% contraction logged in the fourth quarter of last year. Q1’s reading marked the strongest growth since Q4 2019 and brought GDP back to pre-pandemic levels, despite lingering Covid-19 restrictions.

Unlike Q4’s reading, which relied on exports, the upturn in Q1 was broad-based, with a notable recovery in domestic demand: Private consumption, public spending and fixed investment all gained steam. Household spending rebounded, growing 1.0% year-on-year in the first quarter, which marked the best reading since Q4 2019 (Q4 2020: -6.5% yoy), although the figure was flattered by a favorable base effect. Meanwhile, public spending edged up to a 2.6% increase in Q1 (Q4 2020: +2.3% yoy), benefiting from the ongoing expansionary fiscal stance and reaching a record high in real terms. In addition, strong chip exports prompted capital spending on facilities: Fixed investment growth improved to 3.7% in Q1, compared to the 1.2% increase logged in the prior quarter.

Growth in exports of goods and services accelerated to 4.5% year-on-year in the first quarter, which marked the best reading since Q1 2019 (Q4 2020: +1.2% yoy), amid surging demand for IT products. In addition, imports of goods and services bounced back, growing 3.1% in Q1 (Q4 2020: -2.8% yoy).

On a seasonally-adjusted quarter-on-quarter basis, economic growth improved to 1.6% in Q1, following the previous quarter’s 1.2% expansion.

Looking ahead, economic growth should strengthen later this year amid stronger consumer sentiment. However, lingering restrictions could keep a lid on momentum, while the chip shortage in the auto industry could further weigh on the recovery.

On the outlook, Jeong Woo Park, economist at Nomura, commented:

“A continued recovery in private consumption, solid export demand and firm business investment should underpin stronger economic growth in coming quarters. We maintain our 2021 GDP growth forecast of 3.6% and see growth risks as largely balanced.”

Meanwhile, analysts at Goldman Sachs were less optimistic, and see further stimulus ahead:

“First, we expect investment to pull back somewhat in Q2 from a pickup in momentum in Q1. Second, recovery in private consumption could slow incrementally on longer-than-anticipated social distancing restrictions. […] We continue to expect accommodative fiscal and monetary policy given weak private consumption and large slack in job markets. We continue to expect a fifth pandemic relief package to be implemented in H2.”

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest