© Reuters. FILE PHOTO: A truck drives between containers at the Incheon Port Container Terminal in Incheon, South Korea, May 26, 2016.Reuters/Kim Hong-Ji TPX Image of the Day/File Photo
by Cynthia Kim
SEOUL (Reuters) – South Korea’s economy grew at its fastest pace in 11 years in 2021, driven by rising exports and construction activity, a drop in capital investment and a slow recovery in the coronavirus-hit services sector.
Gross domestic product (GDP) will grow 4.0% in 2021 as demand for exports soars, Bank of Korea data showed on Tuesday.
BOK expects GDP to expand 3.0% this year as Asia’s fourth-largest economy benefits from strong chip exports and higher public spending, even as record local COVID-19 cases this week threaten consumption.
“Global demand for our chips is resilient, and strong exports will keep (South Korea’s) growth momentum solid,” said Hwang Sang-pil, head of the Bank of Korea’s economic statistics department.
“People are getting used to social distancing restrictions. Activity slowed in December, but it was less hit than before.”
Starting in the third quarter, the economy expanded by a seasonally adjusted 1.1% in the October-December period, beating the 0.9% increase in a Reuters poll and up from 0.3% in the third quarter.
The fourth quarter’s annual growth rate of 4.1% also beat the survey’s median forecast of 3.7%.
The Bank of Korea raised its benchmark interest rate to pre-pandemic levels on Jan. 14 and signaled further tightening is likely as growth and inflation pressures remain strong.
South Korea’s economy has rebounded sharply from the 2020 coronavirus recession, albeit unevenly, with exports growing at the fastest annual rate in 11 years last year, while a recovery in consumption has not been smooth due to social distancing restrictions.
A recent Reuters poll of 20 economists predicted the economy would grow 2.9 percent this year, below the Bank of Korea’s forecast of 3.0 percent.
Data on Tuesday showed exports were the main driver of growth in the fourth quarter, rising 4.3% month-on-month.
Private consumption and construction investment also contributed to growth, up 1.7% and 2.9%, respectively.
The services sector grew 1.3% in the fourth quarter, stronger than the third quarter but slower than the second.
Capital investment fell 0.6% month-on-month, following a 2.4% drop in the previous three months.
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