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A health worker conducts a COVID-19 test on a man at a temporary screening center in Seoul Plaza. (Yonhap News)

The South Korean economy grew by 1.6% in the first quarter (Q1) of this year. That was considerably higher than the government’s projection of 1.3%, suggesting that the economy has returned to its pre-COVID-19 size. Korea is now projected to see a yearly growth rate of between 3.5% and 4%.

In provisional figures released Tuesday, the Bank of Korea (BOK) said that South Korea’s real gross domestic product (GDP) in Q1 had grown by 1.6% from the previous quarter. That sustained a rebound in Q3 (2.1%) and Q4 (1.2%) of last year, following two consecutive quarters of negative growth in Q1 (-1.3%) and Q2 (-3.2%) after the outbreak of COVID-19.

South Korea’s GDP in Q1 was up 1.8% from the same period last year, posting the highest figure since Q4 2019 (2.3%).

Analysts at the BOK had estimated that if South Korea posted at least 1.3% quarter-on-quarter growth in Q1, its GDP would return to its end-of-2019 level. The news that the growth rate in the Q1 was even higher means that Korea’s economy is now bigger than it was before COVID-19.

Korea’s better-than-expected pace of recovery in Q1 has raised hopes for this year’s annual growth rate.

“Earlier, Bank of Korea Governor Lee Ju-yeol mentioned a growth rate of 3.5%, and that’s starting to look feasible,” said Park Yang-su, head of the bank’s international statistics department.

Indeed, if Korea can maintain just 0.5% of growth from the previous quarter in Q2, Q3, and Q4, it would reach a growth rate of 3.6% for the year. A growth rate of 0.7-0.8% in those three quarters would push the yearly rate above 4%.

Korea’s economic performance in Q1 is significant because it means that domestic demand — which had been a weak point for the Korean economy — has propelled the growth rate. While private consumption and facility investment edged downward in Q4 2020, they began increasing again in Q1.

Private consumption grew by 1.1% from the previous quarter (Q4 2020) as the relaxation of social distancing rules in February, and improved consumer sentiment drove more purchases of durable goods (such as automobiles and electronics) and nondurable goods (such as food products). That’s a sharp rebound from the previous quarter (-1.5%). Facility investment also increased by 6.6%, compared to -2.0% in the previous quarter.

While exports have driven Korea’s economic recovery, they only increased 1.9% in Q1, with those gains focused on automobiles and mobile phones, as growth slowed from Q4 2020 (5.4%).

“Exports are showing a base effect because of the large increase in Q4 2020. We’re currently seeing a rapid economic recovery, including the US’s economic stimulus package and a rising global economic growth rate, so the growth trend in exports is likely to be sustained and improved,” Park said.

Strong performance in Q1 pushed the South Korean economy above pre-COVID-19 levels. Given last year’s annual growth rate of -1.0%, Korea’s real GDP of 468.81 trillion won (US$421.08 billion) in Q4 2019 fell to 463.4 trillion won (US$416.22 billion) in Q4 2020.

That led the BOK to predict that if the Korean economy grew by at least 1.3% in Q1, total GDP would reach end-of-2019 levels. The actual Q1 growth rate was much higher than that, with a total GDP of 470.85 trillion won (US$422.91 billion), exceeding the size of Korea’s pre-COVID-19 economy.

A more granular analysis of the recovery shows that Korea has exceeded end-of-2019 levels in real GDP, exports, and facility investment. Analysts at the BOK said that assuming economic levels in Q4 2019 have a value of 1, real GDP reached 1.004, facility investment 1.126, and exports 1.031 in Q1 2021.

In contrast, private consumption (0.945) and construction investment (0.980) remain below Q4 2019 levels. In particular, private consumption has been weighed down by the continuing sluggishness of in-person services, driven by fears of infection with the COVID-19 virus.

Going forward, experts believe that key variables will be whether COVID-19 will keep spreading and whether “revenge consumption” will continue. In-person consumption is the factor that will determine whether the Korean economy can achieve 4% growth this year.

“The Q1 growth rate rebounded because sluggish private consumption and facility investment began to increase. If consumption of in-person services recovers as well, we could be seeing 4% of growth for the year,” said Kong Dong-rak, an analyst at Daishin Securities.

By Jun Seul-gi, staff writer

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