South Korea’s economy unexpectedly shrank in the first quarter, marking its worst performance since the global financial crisis, as companies slashed investment and exports slumped in response to Sino-U.S. trade tensions and cooling Chinese demand, ONA reports quoting Reuters.
The shock contraction boosted money market bets that the central bank is likely to make a U-turn on policy soon, shifting to an easing stance and possibly cutting interest rates to counter waning business confidence and growing external risks.
A worse-than-expected downturn in the memory chips sector hit first quarter capital investment, while falling exports offset gains from private consumption, the Bank of Korea said on Thursday, echoing strains in other trade-reliant Asian economies.
Gross domestic product (GDP) in the first quarter declined a seasonally adjusted 0.3 percent from the previous quarter, the worst contraction since a 3.3 percent drop in late 2008 and sliding from 1 percent growth in Oct-Dec.
None of the economists surveyed in a Reuters poll had expected growth to contract. The median forecast was for a rise of 0.3 percent.
“Government spending failed to keep up the bumper boost of the fourth quarter, especially for construction investment, while a drop in business investment was worse than expected due to a downturn in the chips sector,” a BOK official said, adding there was also a strong base effect after solid fourth-quarter growth.
From a year earlier, the Korean economy grew 1.8 percent in the January-March quarter, compared with 2.5 percent growth in the poll and 3.1 percent in the final quarter of 2018.