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South Korea Q1 GDP pips Q4, sharp recovery still some way off

Shoppers walk in the Myungdong shopping district in Seoul, South Korea.
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Shoppers walk in the Myungdong shopping district in Seoul, South Korea.

South Korea's economy grew slightly faster than expected in January-March over the previous quarter, central bank estimates showed on Thursday, but annual growth was the slowest in two years - keeping expectations for more policy easing alive.

"Today's numbers did not diverge from market consensus but economic activity still isn't strong," said Moon Hong-cheol, a fixed-income analyst at Dongbu Securities.

"The central bank will cut once more in May. Our financial fundamentals may be fine but in the global course of things we should move in line with other economies."

First-quarter GDP rose 0.8 percent on seasonally adjusted terms from the previous quarter, following a 0.3 percent rise in the December quarter of last year. The median forecast from a Reuters survey of 22 analysts was 0.7 percent, on a seasonally adjusted basis.

From a year earlier, the economy expanded 2.4 percent in the March quarter, which matched a median 2.4 percent forecast in a Reuters poll but marked the slowest growth since the first quarter of 2013.

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Among the sub-indices, only construction investment and investment on intellectual property (IP) products showed meaningful gains.

Construction gained by a seasonally adjusted 7.5 percent on surging residential building, but fell slightly short of recovering a 7.8 percent drop in the fourth quarter. This was the fastest growth for construction investment since the third quarter of 2001 when it jumped 8.6 percent.

Investment on IP products rose 2.6 percent on a quarterly basis, the fastest growth since the fourth quarter of 2013 as companies invested in research and development.

Demand for services and durable goods drove private consumption up by a seasonally adjusted 0.6 percent in the first quarter, following 0.5 percent growth in October to December.

Capital investment posted no growth in the first quarter, following a 4.0 percent gain in October through December. Government spending rose 0.2 percent in the first quarter.

The central bank has said it sees signs of improvement in the economy but is now waiting for the effects of three interest rate cuts between last August and March to take hold, as well as the benefits of lower global oil prices.