By Veronica Dudei Maia Khongwir
BENGALURU (Reuters) – South Korea’s economy narrowly escaped a recession in the first quarter of 2023, barely growing after shrinking in the fourth quarter, underscoring the challenge for policymakers trying to shore up growth, a Reuters poll found.
Asia’s fourth-largest economy is expected to have expanded by a seasonally-adjusted 0.2% in the January-March quarter from the previous quarter, after contracting 0.4% in October-December, according to the April 17-20 poll of 16 economists.
Only three economists predicted a contraction last quarter. Two consecutive quarters of contraction are often defined as a recession.
On a year-on-year basis, gross domestic product (GDP) likely grew 0.9% in the first quarter, the median forecast of 22 economists showed, down from the fourth quarter’s 1.3%.
Forecasts ranged from -0.1% to 1.3%, highlighting the uncertainties facing the economy. The data will be released on April 25.
“High frequency data suggest South Korea’s economy narrowly avoided a technical recession in Q1, as a pick-up in services activity helped offset some of the weakness in manufacturing,” said Krystal Tan, economist at ANZ.
“However, the growth outlook remains challenging amid a combination of weak exports, deleveraging households and the absence of material policy support.”
Exports to China, the country’s largest trading partner, dropped 33.4%, adding to the overall 12.6% fall in exports from a year earlier last quarter.
“This year, the Korean economy is expected to show a sluggish growth rate that falls well below its potential growth rate,” said Jemin Choi, economist at Korea Investment Securities.
“Although exports are expected to improve slightly in the second half of the year, the external sector’s economic recovery is expected to be limited as demand from major advanced countries other than China is expected to recover slowly.”
Increasing borrowing costs and high household debt will also weigh on consumer confidence and private consumption, which accounts for about half of the economy.
The Bank of Korea (BOK) has raised interest rates by 300 basis points since August 2021 to combat surging inflation, and the impact of these hikes is already evident in the housing market, with prices falling for the ninth consecutive month as of February.
Economic growth was forecast at 1.2% this year, well below the BOK’s projection of 1.6%, a separate Reuters poll showed.
(Reporting by Veronica Dudei Maia Khongwir; Polling by Anant Chandak; Editing by Kim Coghill)
