South Korea seen returning to growth in first quarter as memory chips lead robust exports

By Dahee Kim and Cynthia Kim

SEOUL (Reuters) – South Korea’s economy is expected to have returned to growth in the first quarter as exports of memory chips were strong enough to partly offset a steep decline in construction investment.

Gross domestic product data due on Thursday is forecast to show growth of 1.0 percent in the January-March period, rebounding from a shock 0.2 percent contraction in the fourth quarter, a Reuters survey of 10 economists found on Tuesday.

“Growth will be stronger in the second half but what matters will be whether job markets recover enough to support domestic consumption,” said Kim Doo-un, an economist at Hana Financial Investment.

The Bank of Korea is counting on exports, which have recorded 17 months of uninterrupted growth through March, to drive the economic expansion of 3 percent seen for this year.

“In terms of shipment volume, exports of semiconductors grew 17 percent in January-February combined from a year earlier, which should support overall growth in the first quarter,” said An Ki-tae, an economist at NH Investment & Securities.

In value terms, March exports grew 6.1 percent to $51.6 billion from a year earlier thanks to robust global demand for South Korean memory chips and computers across China and Europe, although this outcome was less than expected.

An from NH Investment & Securities added that such strong growth in chip sales would probably offset a downturn in construction and private consumption.

Construction investment fell by 2.3 percent on-quarter over the October-December period, offsetting the contribution from public spending.

Building activity slumped after the government imposed tough new taxes and mortgage curbs last year to rein in a housing bubble.

Tuesday’s poll found that gross domestic product growth was seen expanding 2.9 percent in the March quarter from a year earlier, slightly faster than the annual 2.8 percent in October-December.

The central bank kept its benchmark interest rate steady at 1.50 percent at its April meeting in the face of high household debt and weak inflation after raising it in November for the first time in more than six years.

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