By Joori Roh and Cynthia Kim
SEOUL (Reuters) – South Korea’s first quarter economic growth likely slowed to the weakest pace in more than a year, a Reuters poll showed on Tuesday, as exports faltered and investment activities cooled amid U.S.-China trade frictions.
Asia’s fourth-largest economy is forecast to have expanded 0.3 percent in the January-March quarter from three months earlier, according to a Reuters poll, the weakest since the economy contracted 0.2 percent in the last quarter of 2017 and slowing from the previous quarter’s 1 percent growth.
From a year earlier, the economy probably expanded 2.5 percent in the first quarter, according to the median forecast of 17 economists, also slowing from 3.1 percent growth in the fourth quarter.
Policymakers have pledged to draft an extra budget to juice growth that is projected to fall to a seven-year low of 2.5 percent in 2019 as exports continue to weaken while a delay in chip demand is clouding the outlook for shipments.
Exports contracted for a fourth month in March, putting pressure on the authorities to offer stimulus or shift to an easing stance to ward off growing external risks.
“An over 8 percent fall in exports in the first quarter from a year ago was probably the worse among Asian countries. Undoubtedly, it should have caused a dent to GDP growth,” said Rob Carnell, an economist at ING, referring to an 8.2 percent decline in January-March shipments from a year earlier.
In a sign of continuing strain, exports declined 8.7 percent in the first 20 days of April in annual terms, data showed.
Carnell expects the economy to have posted zero growth in the first quarter.
Market expectations of a rate cut have also gathered momentum in the past month, after the U.S. Federal Reserve recently signalled an end to its tightening cycle.
Moon Jung-hui, an economist at KB Securities, sees limited effect from the planned supplementary budget.
“We predicted a 0.3 percentage point boost in growth for the next two years with a 13 trillion won extra budget, but if it ends up with half the amount, the impact will not be big,” Moon said.
The country’s finance minister said on April 10 the ministry will submit an extra budget of smaller than 7 trillion won (£4.73 billion) to parliament by the month-end, which will likely focus on tackling pollution and downside risks to the economy.
South Korea’s parliament in March passed a set of bills to fight air pollution that has blanketed parts of the country in recent years, with one bill designating the problem a ‘social disaster’.
The Bank of Korea will release first-quarter preliminary growth figures early on Thursday. (2300 GMT Wednesday).
(Editing by Jacqueline Wong)