South Korean economy holds firm in first-quarter

Residential buildings stand illuminated at dusk facing Central Park in the Songdo district of Incheon, South Korea.
SeongJoon Cho | Bloomberg | Getty Images

South Korea's economy grew at a steady pace in the first quarter, data showed on Thursday, a sign that a recovery is gaining momentum and reinforcing expectations for an interest rate hike later this year.

Asia's fourth-largest economy grew a seasonally adjusted 0.9 percent in the first quarter on a sequential basis, the central bank estimates showed, the same as in the December quarter but a touch ahead of forecasts.

Growth was underpinned by a sharp upswing in construction spending and a pickup in export growth, that supports recent data showing rising economic momentum.

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The data also comes two weeks after a new central bank chief voiced optimism about the economy's performance in the coming months, reinforcing the market's view that the Bank of Korea will start raising interest rates from late this year.

"Advanced economies are expected to recover quickly, leading to better exports, which will also influence domestic spending," said Im No-jung, chief economist at IM Investment & Securities.

"Judging from the data, growth will pick up towards the latter half of the year and the economy will probably grow about 4.1 percent this year," he said, adding the figures back his forecast for an interest rate increase in the fourth quarter.

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The figures were released before financial markets opened and are subject to revision later.

The median forecast from a Reuters survey of 11 analysts was for the economy to see growth slowing to 0.8 percent in the March quarter, with nine of them predicting a lower growth rate than in the December quarter.

Construction investment gained 4.8 percent in the first quarter from the previous three months while goods and services exports rose 1.7 percent. In the previous quarter, construction spending shrank 5.2 percent while exports rose 1.4 percent.

Private consumption edged up 0.3 percent in the first quarter on a sequential basis, slowing after a 0.6 percent rise in the fourth quarter of 2013, the data showed.

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Over a year earlier, gross domestic product rose 3.9 percent in the first quarter, compared with a median 3.8 percent forecast in the Reuters poll and 3.7 percent growth posted in the fourth quarter of 2013.

It was the fastest annual growth since a 4.9 percent gain recorded in the first quarter of 2011, mainly reflecting unusually slow growth of 2.1 percent seen during the comparable period of 2013.

Many analysts say the performance of the export sector continues to heavily influence the recovery ahead and without improved global demand for South Korean exports, such as cars, smartphones and machinery, the domestic sectors could also falter.

In March, exports rose 5.2 percent from a year before thanks to more demand from advanced economies for South Korean goods.