South Korea’s economic growth halved in the first quarter from the previous three-month period as poor exports and stumbling capital investment cast doubts over policymakers’ more optimistic expectations for a near-term recovery. 
First-quarter growth slowed to 0.4% in January-March over the previous quarter, the Bank of Korea (BoK) estimated yesterday, slightly below expectations and the weakest seen since the second quarter of last year. 
Sequential growth lagged a seasonally adjusted median forecast from a Reuters survey of 0.5%, and was below the 0.7% rise in the fourth quarter. 
Shortly after the data release, the finance ministry said the economy would step up in the second quarter while the BoK stressed consumption was improving from March thanks to new smartphone and auto releases. 
Both were met with scepticism from analysts. 
“There are so many moving parts right now, including whether improvement will be sustainable with the ongoing structural reforms. The government sounds too optimistic,” said Lee Sang-jae, chief economist at Eugene Investment & Securities. 
“Exports are not looking good with the won’s recent strength. We need to see China rebounding but that’s something we can’t count on. Shipments may improve in Q4 at soonest.” 
On-year, the economy expanded 2.7% in the March quarter, which matched the forecast in the Reuters poll. 
Exports slipped 1.7% in the first quarter from the fourth, nearly wiping out a 2.1% gain in the December quarter. 
As expected, capital investment dropped 5.9% in the March quarter to mark its worst performance since the second quarter of 2012 as companies remained hesitant to invest amid global uncertainties. 
The BoK said capex is expected to improve past the second quarter as major local airlines like Korean Air Lines and Asiana Airlines plan to buy airplanes in the second half of the year. 
The GDP data shows the government’s efforts to encourage consumers to splurge are struggling to gain traction while exports, the country’s main engine of growth, falter. 
Private consumption notched its first fall in nearly a year, falling 0.3% on-quarter. This was the sharpest decline since the June quarter of 2014 as the effects of government measures late last year to boost consumer spending faded. 
Although services rose 0.5% on-quarter, a closer look showed these gains were led by real estate and financial insurance services rather than consumer-based retail and food sales. 
“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%. 
A majority of analysts currently see the BoK lowering rates soon to prop up economic growth, which Lee said may take place later than some expect as the central bank will want to observe the fallout from ongoing structural reform.