South Korea’s economy showed growth in the first quarter of 2024, which turned out to be the fastest in more than two years.
The mentioned result exceeded the preliminary forecasts. The Asian country’s economy was on a rapid growth trajectory in the first quarter of the current year as a result of factors such as increased domestic consumption and robust exports. At the same time, the market has been very cautious about the positive dynamic of the South Korean economic system. In this case, doubts are implied about the sustainability of the growth tendency.
In the first quarter of 2024, South Korea’s gross domestic product (GDP) increased by 1.3% compared to the result in the last three months of 2023. The relevant information was released by the Bank of Korea. It is worth noting that the GDP growth of the Asian country in the first three months of 2024 was the fastest since the fourth quarter of 2021.
In the last quarter of 2023, the mentioned indicator grew by 0.6%. The January-March 2024 result also surpassed the preliminary expectations of economists surveyed by the media, forecasting increasing by 0,6%.
Capital Economics expert Shivaan Tandon says that GDP growth in South Korea in the first quarter of 2024 is largely due to an increase in domestic consumption by 0.8% after rising by 0.2% in the last three months of 2023.
The data for January-March of the current year may be evidence that the worst times for the consumer sector of the Asian country are in the past. It is worth noting that this is just a guess. The positive tendency at a certain stage of the process does not always mean a fundamental change in its vector.
At the same time, there is a weakening of the labor market in South Korea today. It is also likely that the debt service burden of the Asian country will remain a significant factor of pressure on its economy. However, assumptions about the future prospects of the South Korean economic system do not negate the fact of an unambiguously positive result for the first quarter of 2024.
The composite consumer sentiment index (CCSI), which reflects the attitude of citizens to the economic situation, remains above 100 in the Asian country in the current year, which indicates the predominance of an optimistic mood on a pessimistic assessment of the state of affairs.
In January-March of the current year, the Asian country’s economy showed growth of 3.4% compared to the indicator for the same period in 2023. In the last quarter of 2023, the mentioned figure increased by 2.2%. It is worth noting that experts interviewed by the media predicted that the South Korean economy would grow by 2.4% in the first quarter of 2024.
At its last meeting to decide on the interest rate, the financial regulator of the Asian country stated the likelihood that in the current year, the economic system will demonstrate a more intense positive dynamic than originally predicted. It is worth noting that the mentioned indicator was initially expected to grow by 2.1% in 2024. Last year, South Korea recorded economic growth of 1.4%, which is a three-year low.
An official of the central bank of the Asian country, at a briefing held after the GDP data for the first quarter of 2024 were published, said that it is currently too early to say that the dynamic of consumption has turned the corner. Also in this context, it was noted that economic growth is likely to be higher than preliminary forecasts. Next month, the financial regulator of the Asian country will publish a forecast on the development of the economic situation. An official of the Bank of Korea said that the formation of the mentioned forecast will take into account the geopolitical risks associated with the tense strait in the Middle East, the state of affairs in the forex market, and uncertainty about the prospects for inflation.
Exports of goods from South Korea increased by 0.9% in the first quarter of 2024 compared to the result for the last three months of 2023. The volume of investment in production facilities in the Asian country fell by 0.8% in January-March of the current year. At the same time, financial injections into the construction sector for the first quarter of 2024 showed an increase of 2.7%. Government spending in January-March of the current year grew by 0.7%.
It is worth noting that the indicator of export activity in South Korea is on a growth trajectory for the sixth month in a row. Consumer spending continues to be weak. Interest rates in the Asian country have remained at a high level for a long period, which provokes concerns about an uneven economic recovery.
This month, the Bank of Korea said that significant uncertainty about inflation forecasts and export growth is a factor that generates unfavorable conditions for near-term lowering of borrowing costs. Currently, the policy rate in the Asian country is at a 15-year high.
Park Yun-jung, an analyst at NH Investment & Securities, said about the expectation that the Bank of Korea to cut interest rates in July as core inflation is on an easing trajectory.
Before the publication of GDP data, opinions were circulating in the expert community that by the end of 2024, the financial regulator of the Asian country would lower the cost of borrowing to 3% from 3.5% currently.
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