BENGALURU- South Korea’s economic growth likely slowed significantly in the first quarter as restrictions imposed to prevent the spread of COVID-19 slammed the brakes on consumer spending, a Reuters poll found.
Asia’s fourth-largest economy is expected to have expanded by a seasonally adjusted 0.6 percent in the January-March quarter from the previous three-month period, according to the median forecast, after growing 1.2 percent in October-December.
On a year-on-year basis, gross domestic product (GDP) expanded 2.8 percent in the first quarter, the median forecast of 18 economists showed, down sharply from the fourth quarter’s 4.2 percent pace. The data will be released on April 25.
The Bank of Korea’s new governor, Rhee Chang-yong, warned that economic growth was expected to weaken further, and in the long run, the economy may experience stagnation amid an aging population and decreased productivity.
“Due to the rapid spread of COVID-19 in the first quarter, private consumption will be weaker than expected at the beginning of this year…high inflation due to the Ukraine war is also likely to limit growth,” wrote Kyu-yeon Chun, an economist at Hana Financial Investment in Seoul.
“Growth momentum from the external sector is also likely to weaken as (the) trade surplus has been narrowed by rising raw material prices.”
South Korea, a major importer of energy and raw materials for semiconductor chip production, was expected to experience a heightened risk of manufacturing disruptions from Russia’s war on Ukraine.
That, along with decade-high inflation and a slowing Chinese economy – the country’s biggest trading partner – meant the South Korean economy was expected to lose momentum this year and next amid waning pandemic-related stimulus.
Growth was forecast to average 2.8 percent this year and 2.6 percent in 2023, a separate Reuters poll found.
“The near-term growth outlook will remain challenging, as elevated commodity prices lift inflation and put downside pressure on domestic demand,” wrote Lloyd Chan, senior economist at Oxford Economics.
Last week, the Bank of Korea (BOK) raised its benchmark interest rate in a surprise move to fight high inflation, which threatens its economic recovery.
