Q1 South Korea Economic Growth Rate 1.3%
Far Exceeds Market Expectations
In the first quarter of this year, South Korea's economic growth rate far exceeded expectations, prompting global investment banks (IBs) to consecutively revise their growth forecasts for the Korean economy upward.
According to the International Finance Center on the 27th, JP Morgan significantly raised its forecast for South Korea's economic growth rate this year from 2.3% to 2.8%. Barclays also revised its growth forecast for Korea this year upward from 1.9% to 2.7%, Goldman Sachs from 2.2% to 2.5%, and BNP from 1.9% to 2.5%.
The Bank of Korea announced on the 25th that South Korea's first-quarter real gross domestic product (GDP) growth rate (preliminary figure) recorded 1.3%, significantly surpassing previous forecasts.
JP Morgan evaluated that "South Korea's first-quarter net exports and manufacturing growth were solid as expected, and domestic demand also showed strength, leading to the upward revision of the growth rate."
The International Finance Center explained, "Due to the favorable GDP in the first quarter, most analytical institutions have revised their economic growth forecasts for Korea this year upward from the high 1% range to the 2% range."
UBS also raised its forecast for Korea's economic growth rate from 2.0% to 2.3% ahead of the first-quarter growth announcement, while Citi increased it from 2.0% to 2.2%, and HSBC from 1.9% to 2.0%. With the first-quarter growth rate coming out better than expected, these IBs are also expected to raise their growth forecasts further.
The IBs predicted that due to stronger-than-expected economic growth, the Bank of Korea's timing for cutting the base interest rate could be further delayed.
UBS stated, "The Bank of Korea's rate cuts are expected to proceed slowly," adding, "Rate cuts will begin in July, and the year-end base rate is expected to be 3.0%." BNP also said, "The Bank of Korea is expected to postpone its first rate cut from July to August." ING analyzed, "Unless domestic conditions deteriorate significantly, the Bank of Korea's hawkish stance will last longer than expected," and "The first rate cut may be delayed until the third quarter."
Although South Korea's economy showed a surprise growth in the first quarter, some views suggest that a full recovery needs to be observed further. Considering the sustainability of consumer spending recovery and the one-off nature of investment and government spending recovery, it is necessary to watch whether the growth trend seen in the first quarter will continue robustly thereafter.
Capital Economics analyzed, "Consumer spending may have escaped the worst, but given the weakening labor market and high debt costs, it is difficult to be confident that this marks the start of a strong consumption recovery." Barclays evaluated, "The higher-than-expected construction investment and government spending have a strong government-led character, so there is a one-off favorable aspect."
There is also a possibility that the construction investment rebound in the first quarter will return to weakness. ING forecasted, "First-quarter construction investment rebounded due to accelerated infrastructure projects, completion of major housing site developments, and government financial support," adding, "It appears to be a temporary rebound, and as PF restructuring continues, pressure on the construction sector will persist through the second half."
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