The Bank of Korea revised up this year's growth forecast to 2.6 percent from the previous 2.5 percent estimated three months earlier, as both exports and private consumption showed signs of improvement.
Bank of Korea Governor Lee Ju-yeol made the announcement on April 13 after the monetary policy meeting. The central bank governor said the recent economic growth momentum was mostly owed to improved exports and investments, which are expected to raise the first-quarter growth rate higher than the previous quarter.
He said the IT sector has been doing well so far this year for three reasons: facility investments in the sector are rising; an improvement in consumer sentiment due to a trial date set for former President Park on May 2; and the presidential election slated for May 9. As usual, exports have been a big factor in the nation’s economy, expanding steadily so far this year.
Exports rose 13.7 percent in March YoY. The export increases of such key commodities as semiconductor chips and petroleum products lead the way in the first quarter, sustaining its expansion for five months in a row since November last year. The exports in the first quarter expanded in double digits for the first time in 66 months, helping facility investments and the manufacturing sector’s productivity rise in February 19.5 percent and 7 percent YoY respectively.
Sales in department and discount stores dropped in February, but they expanded in March by 1.7 percent and 3.2 percent respectively.
It was the first time in three years that the central bank revised up its growth forecast. The BOK estimate was the same as those from the finance ministry and the International Monetary Fund.
The BOK outlook was even higher than the figures estimated by economic think tanks. Hyundai Research Institute and LG Economic Research Institute set its growth outlooks at 2.3 percent and 2.2 percent, respectively, while the state-run Korea Development Institute (KDI) projected a 2.4 percent expansion.
A state-run think tank on April 13 revised up its 2017 growth forecast for the South Korean economy by 0.2 percentage point to 2.6 percent thanks to a recovery in the world economy and an upturn in exports.
For 2018, the South Korean economy is predicted to post a 2.5 percent growth due largely to a slowdown in facility and construction investment, said the institute.
The KDI's revision came as recent positive economic data stirred up optimism in Asia's fourth-largest economy for the first quarter.
Hopes are high that the South Korean economy has entered an upside cycle on the back of robust exports and recovering domestic demand.
The country's exports posted growth five months in a row since November last year on stellar overseas sales of semiconductors led by recovering world trade. The stellar overseas sales of semiconductors also pushed up facility investment.
Retail sales also gained 3.2 percent on-month in February, a rebound from the consecutive drops posted for the November-January period.
The KDI report predicted that exports will expand 4 percent this year, spearheading the overall economic growth, a sharp turnaround from a 6.4 percent fall in 2016.
Facility investment will likely rebound to post 4.3 percent on-year growth this year from a 2.3 percent drop in 2016, on the back of robust exports, while construction investment will slow down to grow 6.4 percent in 2017 from last year's 10.7 percent.
Private consumption is expected to advance 2 percent this year, slightly down from a 2.5 percent gain in 2016, due to the diminished effect of government-led consumption boosting measures. The government gave tax breaks on cars and arranged a nationwide sales event last year to encourage people to spend more money.