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South Korea Q1 GDP growth slows on weak capex, exports

[SEOUL] South Korea's economy grew 0.4 per cent in January-March over the previous quarter, the central bank estimated on Tuesday, slightly below expectations and with growth almost halving from the fourth quarter of 2015.

First quarter growth was the slowest seen since the second quarter of last year due to poor exports and stumbling capital investment.

Sequential growth lagged a median forecast from a Reuters survey of 0.5 per cent, on a seasonally adjusted basis, and was below the 0.7 per cent rise in the fourth quarter.

The forecasts from 17 analysts had ranged from 0.3 per cent to 1.8 per cent.

"We may see more of a slowdown in the second half of the year but for now, the second quarter will improve on base effects. This will prompt the Bank of Korea to save its bullets for later," said Stephen Lee, economist at Samsung Securities, referring to the central bank possibly cutting interest rates from the current 1.50 per cent.

A majority of analysts currently see the BOK lowering rates soon to prop up economic growth, which Mr Lee says may take place later than some expect as the central bank will want to observe the fallout from ongoing structural reform.

From a year earlier, the economy expanded 2.7 per cent in the March quarter, which matched a median 2.7 per cent forecast in the Reuters poll.

As expected, capital investment dropped 5.9 per cent in the March quarter after rising 0.5 per cent in the final three months of 2015. It was the worst performance for the sector since the second quarter of 2012 as companies remained hesitant to invest amid global uncertainties.

Exports, which were also widely expected to have placed a drag on growth along with facilities investment, slipped 1.7 per cent in the first quarter from the fourth, in seasonally adjusted terms.

Private consumption notched its first fall in nearly a year, falling 0.3 per cent on-quarter. This was the sharpest decline since the June quarter of 2014.

In the first quarter, construction and government spending managed to keep growth from reeling off the tracks.

Construction investment jumped by a seasonally adjusted 5.9 per cent from a 2.4 per cent decline in the December quarter. Government spending rose 1.3 per cent on-quarter, thanks to traditional front-loading of the government budget towards the start of the year.

The central bank has said although weakness was detected early in the year, the economy is expected to improve beyond the second quarter as the global economy and oil prices rebound.