South Korea’s economic growth nearly halved in the first quarter from the previous three months as consumers and companies cut spending amid coronavirus curbs and surging inflation.
Gross domestic product grew a seasonally-adjusted 0.7 percent in the first quarter from the last quarter of 2021, the Bank of Korea (BOK) said on Tuesday, down from 1.2 percent in October-December, but slightly ahead of market expectations.
Private consumption shrank 0.5 percent, the worst in five quarters, as the government forced bars, restaurants and other businesses to close early to combat a surge in Omicron variant cases.
Capital investment fell 4 percent, the fastest decline in three years, while construction investment lost 2.4 percent.
From a year earlier, the economy grew 3.1 percent, compared with economists’ forecast of 2.8 percent growth.
“From the current quarter, the growth engine is expected to shift from exports to domestic consumption,” ING economists said in a note. “We are already seeing early signs of a recovery in private consumption as the government lifts most restrictions while the trade balance is going to record a deficit for a couple of months in the near future.”
The BOK is expected to revise down this year’s growth forecast from the current 3 percent estimate in its next review in May, as the country faces headwinds from the Ukraine war, US monetary policy tightening and COVID-19 lockdowns in China.
New BOK Governor Rhee Chang-yong said last week that economic growth is expected to weaken further from earlier projections, highlighting that monetary policy will aim to balance growth and inflation.
The BOK this month raised its benchmark rate to 1.50 percent, the highest since August 2019, in a surprise move as it ramped up the fight against inflation.
The International Monetary Fund recently lowered its 2022 growth projection for the country to 2.5 percent from 3 percent while upgrading its inflation projections to 4 percent from 3.1 percent.
Moody’s has forecast growth of 2.7 percent this year, while ING sees a 2.8 percent expansion.