South Korea's economy unexpectedly contracts in the first quarter, marking its worst performance since the global financial crisis and sending the won down
SEOUL - South Korea’s economy unexpectedly shrank in the first quarter, marking its worst performance since the global financial crisis, as government spending failed to keep up the previous quarter’s strong pace and as companies slashed investment.
The shock contraction reinforced financial market views that the central bank is likely to make a U-turn on policy, shifting to an easing stance and possibly cutting interest rates to counter declining business confidence and growing external risks. Gross domestic product 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, the Bank of Korea said on Thursday.
“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.
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