April 25, 2018 / 11:12 PM / a year ago

South Korean economy rebounds in first-quarter on exports, govt spending

SEOUL (Reuters) - South Korea’s economy rallied last quarter, buoyed by healthy exports and a boost from government spending, while private consumption growth remained sluggish.

FILE PHOTO: An employee walks on a crane at a container terminal at Incheon port in Incheon, South Korea, May 26, 2016. REUTERS/Kim Hong-Ji/File Photo

Gross domestic product for the January-March period rose 1.1 percent, the Bank of Korea said on Thursday, rebounding after contracting by 0.2 percent in the fourth quarter.

The 1.1 percent growth in seasonally adjusted terms beats the median forecast of 1.0 percent from a Reuters survey of 10 economists.

In annual terms, GDP rose 2.8 percent in the first quarter, on par with a 2.8 percent rise in the fourth quarter.

Rising export volumes, particularly for memory chips and other IT products, gained 4.4 percent and added to growth.

Private consumption, which accounts for about half of GDP, gained a mere 0.6 percent and marked its slowest growth in a year.

Government spending rose 2.5 percent and posted the fastest quarterly gain in six years, thanks to higher spending on health care.

President Moon Jae-in has been expanding medical benefits for the elderly and for dementia screening and fertility treatments.

“The expanded medical benefits boosted government spending, while surging shipments of memory chips is still supporting exports,” a Bank of Korea official said.

Park Chong-hoon, an economist at Standard Chartered Bank of Korea, says domestic demand will recover in the second half.

“Exports will continue to lead growth. An increase in minimum wage will kick in slowly and we could probably see household spending picking up in the second half,” Park said.

Even with 17 months of uninterrupted export growth through March, policymakers are navigating the competing concerns of weak domestic consumption and soaring household debt at about 190 percent of disposable income.

With youth unemployment still hovering near record levels at 11.6 percent, scarce jobs and the consequent downward pressure on wages have held back domestic demand.

A 3.9 trillion won ($3.62 billion) government bill proposed to support firms that hire young workers has yet to be approved by the National Assembly.

Service sector output grew 0.9 percent from a quarter earlier, but breakdowns showed food and lodging output declined 0.9 percent, even as South Korea hosted this year’s Winter Olympics in PyeongChang in February-March.

The central bank expects the economy to expand 3 percent this year, but that estimate is subject to global demand for South Korean memory chips and other manufactured goods in the face of a feared trade war between the United States and China and its potential fallout.

Reporting by Cynthia Kim; Editing by Eric Meijer

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