The South Korean economy is averting a recession but faces tough headwinds

• South Korea’s Q1 GDP +0.3% vs. Reuters poll +0.2%
• Private consumption is growing while investment is collapsing
• Rate hike cycle widely seen amid gloomy outlook

SEOUL, April 25 (Reuters) – South Korea’s heavily trade-dependent economy struggled to avert a recession and posted modest growth in the first quarter, but the outlook remained clouded by weak exports amid a slowing global economy, despite China’s reopening.

South Korea’s gross domestic product (GDP) grew 0.3% in the first quarter from the previous three-month period, official estimates showed on Tuesday, compared with an average increase of 0.2% indicated in a Reuters poll.

Still, economists saw it as little more than a technical recovery after a 0.4% decline in the last quarter of 2022, the first drop in 2 1/2 years, and reiterated their view that the central bank’s tightening cycle is over.

“I don’t see any sign of strength in the detailed numbers about the future trajectory of the economy,” said Oh Suk-tae, an economist at Societe Generale Securities in Seoul, adding he stands by his forecast of 0.8% growth for the year full year .

Private consumption made the largest contribution to GDP in the first quarter with growth of 0.5%, while capital investment dampened economic growth and fell by 4.0%. Exports increased by 3.8% and imports by 3.5%.

There is great uncertainty both externally and internally, but a rebound in the IT sector and China’s economy should lead to a rebound in the second half of the year, a central bank official said at a news conference.

The Bank of Korea said earlier this month that this year’s economic growth would be weaker than its earlier forecast of 1.6% as the central bank kept interest rates steady for the second straight day.

Economists now expect the Bank of Korea to stop raising rates after raising rates by 300 basis points since late 2021.

More than a year earlier, the country’s gross domestic product (GDP) grew 0.8% in January-March, according to Bank of Korea estimates, compared with gains of 1.3% in the previous quarter and 0.9% in the survey.

Reporting by Jihoon Lee and Choonsik Yoo; Editing by Sonali Paul

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