Korea: Steady economic growth in Q1 buttressed by government spending and exports
April 26, 2018
According to preliminary data released by the Bank of Korea on 26 April, the economy grew 2.8% year-on-year in the first quarter of 2018, matching the growth rate recorded for the fourth quarter of 2017. In seasonally-adjusted terms, output increased 1.1% in the first quarter compared to a quarter earlier, contrasting the 0.2% decrease recorded in the fourth quarter. Overall, the economy got off to a good start this year and generally hit market analysts’ growth expectations.
While consumers remained broadly confident about the economy in Q1, optimism fell compared to Q4, and unemployment increased. Despite this, year-on-year private consumption growth remained at 3.4% in Q1, on par with the figure in Q4. Moreover, government consumption growth reached 6.1% in Q1 on the back of increased public healthcare spending. This was a nearly ten-year high and up from 4.1% in Q4. Meanwhile, fixed investment expanded 4.7% in Q1, down from 5.0% in Q4. The slower expansion in fixed investment was primarily due to weaker growth in construction investment, likely resulting from recent government measures aimed at taming the hot housing market.
On the external front, exports of goods and services increased 1.6% year-on-year, contrasting the 0.6% contraction in Q4. The increase was likely stoked by the arrival of visitors from around the world for the PyeongChang Olympic Winter Games and subsequent Paralympics. Moreover, in March, tourist arrivals from China crossed the 400,000 mark for the first time since the Chinese government imposed travel restrictions to Korea exactly a year earlier. Imports, meanwhile, increased 4.7% in Q1, up from 4.1% in Q4. Overall, the external sector detracted 1.7 percentage points from economic growth in Q1, less than the 2.4 percentage-point detraction in Q4.
Korea GDP Forecast
The Central Bank expects the economy will grow 3.0% in 2018 and 2.9% in 2019. The analysts we surveyed this month expect an expansion of 2.9% in 2018, which is down 0.1 percentage points from last month’s estimate. For 2019, our panel sees an expansion of 2.9%.
Author: Edward Gardner, Economist