SEOUL (Reuters) - South Korea raised its export outlook for the year after first quarter economic growth accelerated at a sharper pace, with policymakers saying there was no need for extra stimulus even as the economy faces a host of political and economic challenges.
The firm start to the year on strong exports and capital investment is a relief for policymakers after months of political crisis and as the country prepares to elect a new president in May amid rising tensions with neighbours North Korea and China.
With overall growth rebounding, drawing up a supplementary budget to boost the economy won't be necessary for now, Finance Minister Yoo Il-ho told reporters, although the final decision may be up to the nation's next leader.
Growth in the second quarter won't slow sharply, Yoo added, but uncertainties will continue to persist.
Gross domestic product grew a seasonally adjusted 0.9 percent in the first quarter, the Bank of Korea said earlier on Thursday, accelerating from a 0.5 percent quarterly expansion in the final three months of last year.
It was the fastest pace since the second quarter of 2016 when the economy grew 0.9 percent. The median forecast in a Reuters survey was for a 0.7 percent expansion.
From a year earlier, GDP rose 2.7 percent in the first quarter.
Facility investment led overall growth with a 4.3 percent gain on quarter, while exports gained 1.9 percent after declining 0.1 percent a quarter earlier. Private consumption grew 0.4 percent, accelerating from 0.2 percent previously.
Construction investment growth leapt 5.3 percent from three months earlier, as "apartment projects that boomed from a year earlier are still supporting economic growth," a finance ministry official said.
Still, South Korea's service sector barely averted decline and rose at the slowest pace in 32 quarters, 0.1 percent, from three months earlier.
"Chinese tourist numbers fell due to China's restrictions on travel to South Korea, while consumer sentiment was sluggish. Some also delayed buying their mobile phones waiting for new smartphone releases," Chung Kyu-il, a director general at the BOK said.
China has ordered a halt to tours to South Korea in retaliation against Seoul's decision to deploy the U.S. Terminal High Altitude Area Defence radar system.
Asia's fourth-largest economy will hold a presidential election on May 9 following the impeachment of ex-leader Park Geun-hye.
Leading democratic candidate Moon Jae-in has already promised an extra budget of at least 10 trillion won ($8.90 billion), although many analysts including Stephen Lee, chief economist at Meritz Securities, said current economic conditions don't warrant one for now.
"Drawing up an extra budget wouldn't make sense anymore," Lee said. "We have to see who'll become president, but I think it would be better to focus on spending on next year's budget in order to improve the fundamentals of the economy."
The trade ministry upgraded its 2017 export outlook to 6-7 percent, exceeding the earlier 2.9 percent estimate, citing stronger shipments of semiconductors, display panels and cosmetics.
The BOK kept interest rates unchanged at a record low of 1.25 percent in April and most economists expect it to hold fire until next year.
"We think the BOK's next move is up and, in line with consensus, we forecast it happening in the second half of 2018," ING said in report ahead of the GDP data.
($1 = 1,124.1500 won)
Editing by Jacqueline Wong