South Korea’s economic growth cooled after a rapid rebound from the COVID-19 pandemic slump, as exports fell from the prior quarter even as consumption jumped before the country was tested by its worst wave of the coronavirus.
GDP rose 0.7 percent during the April-to-June period from the previous quarter, the Bank of Korea (BOK) said yesterday, below economists’ consensus for a 0.8 percent increase. The economy still expanded 5.9 percent from the low levels of a year earlier.
The below-consensus expansion still keeps South Korea ahead of most countries in the race to emerge from the COVID-19 slump. Unless virus outbreaks worsen, the economy should be on track to reach the 4 percent growth the BOK expects for the year and give Governor Lee Ju-yeol the green light to push ahead with a rate hike as earlier signaled.
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From the previous quarter, private consumption jumped 3.5 percent, the fastest growth since 2009, while government spending also increased 3.9 percent, the biggest rise since 1987, the latest data showed.
Exports adjusted for price changes declined 2 percent, but imports grew 2.8 percent. Investment in facilities edged up just 0.6 percent, after a 6.1 percent pace in the previous three months. Construction investment contracted 2.5 percent, while manufacturing fell 1.2 percent from the prior quarter, the data showed.
“Private consumption is holding up better than expected this quarter despite the virus,” KB Securities Co economist Oh Jae-young said. “But if the outbreaks are not brought under control, risks to the economy could grow.”
How the economy performs this quarter and next will hold the key to the timing and pace of the BOK’s interest-rate hike. The country’s outlook has been clouded in the past few weeks by a surge in infections to well over 1,000 cases a day, which has forced the government to enforce a semi-lockdown for half the population. A vaccine shortage is also delaying the inoculation drive.
At a briefing after the GDP report, BOK official Park Yang-su said the economy remains on track to grow in line with projections, although the outlook still depends on how the outbreak evolves.
At its policy meeting earlier this month, the central bank said renewed risks from the virus are offset by resilient exports and more government spending.
South Korean parliament last week approved a 34.9 trillion won (US$30.2 billion) extra budget, which includes handouts to most households.
This would add 0.17 percentage points to this year’s GDP growth, Citigroup Inc has estimated.
The central bank has said fiscal stimulus should buffer the economic hit from virus restrictions.
It should also aid vulnerable households and businesses as the BOK plans to normalize policy to curb financial risks.
For South Korea to flatten the virus curve and to achieve the government’s goal of reaching herd immunity by November, the pace of vaccination needs to pick up significantly. About one-third of the population has had at least one dose of vaccine so far.
South Korea yesterday launched vaccinations for workers at key computer chip and electronic businesses to minimize disruptions in the global supply chain amid struggles to keep up with its inoculation schedule.
Major tech companies, including Samsung Electronics Co, Samsung Display Co, SK Hynix Inc and LG Display Co, and their suppliers began in-house vaccination for their employees, the companies’ spokespeople told reporters.
The government approved the companies’ internal vaccination plans last month.
The vaccination program would target more than 303,000 workers in about 40 companies with in-house clinics, the Yonhap News Agency reported.
Samsung, SK Hynix and LG Display said they are vaccinating their workers with the Pfizer-BioNTech shot.
Samsung and its affiliates had initially planned to offer Moderna vaccines.
However, Yonhap reported that the plan is now to offer Pfizer-BioNTech after supply and shipment issues.
Additional reporting by Reuters
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