GDP grows at fastest pace in 3 years

The economy recorded its fastest growth in three years in the first quarter, according to the central bank, Thursday.

The Bank of Korea (BOK) said the nation’s gross domestic product (GDP) rose 3.9 percent from the preceding January-March period.

It marks the fastest yearly growth since the first quarter of 2011 at 4.9 percent.

For quarter-to-quarter, the economy grew 0.9 percent from three months earlier.

The BOK said the growth of private consumption slowed down coupled with a decrease in facility investment, but a steady export growth and large increases in construction investment and intellectual property products did still propel the total growth.

“Private consumption grew 0.3 percent from the previous quarter, lower than the fourth quarter’s 0.6 percent,” Jung Yung-taek, director general at the BOK, said.

“We attribute the dull consumption to two reasons. First, a larger-than-before number of people had to pay additional taxes through the year-end tax adjustment in February, and this reduced households’ incomes by about 580 billion won. Second, people spent less for oil and electricity for heating due to the warmer-than-usual weather,” he said.

Facilities spending shrank, but construction investment rose 4.8 percent quarterly, as construction of residential buildings hiked, Jung said.

The intellectual property products jumped 7.5 percent. It was included in the national accounts this year following the adoption of new calculation standards.

“The growth of intellectual property products mainly came from private spending for R&D. The private R&D investment also contributed to exports,” he said.

Jung said the quarterly growth rate is in line with the central bank’s forecast of economic growth. “The first quarter’s yearly growth rate of 3.9 percent almost reached the BOK’s outlook for 2014’s total growth, 4 percent.”

As the central bank earlier predicted domestic consumption would lead this year’s growth, there are concerns about a slowdown in private consumption in the second quarter following the tragic sinking of the ferry Sewol.

Since the accident on April 16, several companies have cancelled their promotional campaigns and most people have refrained from eating out and indulging in entertainment activities.

“We haven’t yet studied what influence the accident would have on domestic demand. We’ll check it when collecting the second-quarter data,” Jung said.

HSBC economist Ronald Man said Korea is on a gradual export-led recovery track.

“Stronger export growth shows that demand from developed markets offset still-sluggish demand from China,” he said, adding Korea may still close its output gap without China’s full recovery.

Man however hinted at the possibility of downside risks, including more aggressive price competition with Japanese exporters on the back of the weak yen, and weak household demand resulting from declining disposable incomes.

Nomura economist Kwon Young-sun said Korea’s first quarter growth was solid but also cautioned that the ferry sinking could have an impact on the short-term outlook.

“Downside risk comes from lower private consumption and imports as we expect at least a short-term dip in consumer sentiment ― in response to the recent ferry sinking, many individuals and corporate entities have delayed or cancelled entertainment activities and travel as a mark of condolence. At this point it is unclear how much private consumption and service activities may get back in May or June,” Kwon said. By Kim Rahn The korea times

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