SEOUL, May 12 (AJP) — The South Korean economy was the best performer among major economies in the first quarter of this year, benefiting from a base effect from a contraction in the fourth quarter of last year and chip boom.
South Korea's real gross domestic product (GDP) increased by 1.7 percent in the first quarter from the previous quarter - the highest growth rate among the 22 countries that have released first-quarter flash estimates as of Monday.
This outperforms countries that have historically recorded higher growth, such as Indonesia (1.37 percent) and China (1.3 percent) - the only countries that saw growth exceeding 1 percent in the first quarter other than South Korea so far.
Most other major advanced economies remained in the 0 percent range. The United States grew 0.5 percent while Japan expanded 0.1 percent. Major European economies including Portugal, the Netherlands and Italy also recorded zero or marginal growth of around 0.1 percent.
The primary driver of the growth was a surge in semiconductor exports. Rapidly increasing production and exports of memory chips, fueled by expanding AI investment and demand for High Bandwidth Memory (HBM), led to a 5.1 percent increase in total exports compared to the previous quarter.
The semiconductor boom also translated into facility investment and production normalization. As investments in semiconductor equipment and electronic devices increased to meet the expansion of AI servers and data centers, facility investment grew in the high 4 percent range compared to the previous quarter.
The rapid growth in the first quarter, however, may be a "base effect" from the previous quarter's contraction. South Korea’s growth rate in the fourth quarter of last year was minus 0.2 percent, ranking as the second lowest among G20 member nations after Mexico (-0.8 percent).
When growth in the previous quarter is negative, the following quarter's growth rate can appear significantly high simply through the normalization of production, exports, and investment.
South Korea saw a 2.1 percent rebound in the third quarter of 2020, followed by a -3.0 percent contraction in the second quarter of that year due to the COVID-19 pandemic.
The risk that growth could slow again depending on the semiconductor cycle also remains a concern.
According to the central bank, semiconductors accounted for more than half of the manufacturing sector's contribution to growth, at approximately 55 percent.
Without the semiconductor manufacturing sector, the first-quarter growth rate of 1.7 percent could have been cut by more than half.
Above all, forecasts are emerging that the prolonged blockade of the Strait of Hormuz due to the conflict between the U.S. and Iran could significantly slow South Korea's economic growth.
French investment bank Natixis recently slashed its real GDP growth forecast for South Korea from 1.8 percent to 1.0 percent, while British research firm Capital Economics lowered its outlook from 2.0 percent to 1.6 percent.
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