By Jihoon Lee
SEOUL -South Korea’s economic growth nearly halved in the first quarter from the preceding three months on coronavirus curbs and surging inflation, while a slowing Chinese economy clouded the outlook for the coming months.
Gross domestic product grew a seasonally-adjusted 0.7% in the first quarter from the last quarter of 2021, preliminary data from the Bank of Korea (BOK) showed on Tuesday, slowing from 1.2% a quarter earlier, but just beating 0.6% growth seen in a Reuters survey.
“Domestic consumption will rebound as domestic COVID-19 curbs were mostly lifted, but China’s slowdown would severely hit exports and the overall economy in the current quarter,” said Park Sang-hyun, economist at HI Investment & Securities.
South Korean stocks and the won currency opened with modest gains after the data.
The data comes as a senior International Monetary Fund (IMF) official warned on Tuesday Asia faces a “stagflationary” outlook with likely downgrades to growth projections and surging price pressures.
Private consumption shrank 0.5%, the worst contraction in five quarters, as the government enforced social distancing restrictions to curb a surge in Omicron coronavirus cases.
Capital investment fell 4%, the fastest decline in three years, while construction investment lost 2.4%.
From a year earlier, the economy grew 3.1%, compared with economists’ forecast for 2.8% growth.
The BOK is expected to revise down this year’s growth forecast from the current 3% estimate in its next review in May, as the country faces headwinds from the Ukraine war, U.S. monetary policy tightening and COVID-19 lockdowns in China.
New BOK governor Rhee Chang-yong said last week economic growth is expected to weaken further from earlier projections and that monetary policy would need to address risks to growth and the threats from inflation.
In a separate Reuters poll, South Korea’s economy was forecast to grow 2.8% this year and 2.6% in 2023 after expanding at an 11-year high of 4% in 2021.
The BOK this month raised its benchmark rate to 1.50%, the highest since August 2019 in a surprise move as it ramped up the fight against inflation.
The IMF recently lowered its 2022 growth projection for the country to 2.5% from 3.0% while upgrading its inflation projections to 4.0% from 3.1%.
(Reporting by Jihoon Lee, Cynthia Kim, Choonsik Yoo; Editing by Sam Holmes)
