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South Korea’s economic growth accelerated in the first quarter, with the country’s manufacturing sector and exports expanding even as it faced economic fallout from rising geopolitical tensions in the region at the start of 2017.

Gross domestic product expanded 0.9 per cent quarter-on-quarter in the January-March period, according to the Bank of Korea, after growing 0.5 per cent in the fourth quarter. The annual growth rate was 2.7 per cent, up from a pace of 2.4 per cent in the three months ended December.

Both came in above median forecasts from economists surveyed by Reuters predicting on-quarter growth of 0.7 per cent and an annual pace of 2.6 per cent.

The central bank said quarter-on-quarter growth in private consumption expenditure had doubled to 0.4 per cent, helping offset a 0.1 percentage point dip in government consumption to 0.5 per cent.

Exports of goods and services grew 1.9 per cent during the period, rebounding from contraction of 0.1 per cent in the December quarter as outbound shipments of goods rose 2.6 per cent (0.4 per cent previously) and contraction in services exports softened to 3.3 per cent (minus 4 per cent preivously).

Growth in manufacturing ticked upward by 0.2 percentage points for an on-quarter rise of 2 per cent, while the construction sector expanded 4 per cent – up from a rise of 1.3 per cent in the previous quarter. But services growth dipped 0.1 percentage points to just 0.1 per cent, the slowest pace of expansion for the sector since Q3 2015.

South Korea has been faced with mounting geopolitical difficulties in 2017 as it prepares to replace impeached president Park Geun-hye at an election on May 9, the impact of which has varied for the conglomerates that help drive its economic engine.

Samsung Electronics estimated its first-quarter operating profit reached the highest level in three and a half years on the back of solid component sales in the first quarter. But on Wednesday Hyundai Motor forecast a gradual recovery in earnings after first-quarter profit dropped by a fifth, dented by a consumer backlash in China over Seoul’s deployment of a US missile defence system.

The Bank of Korea kept interest rates on hold at 1.25 per cent at its most recent meeting, but central bank governor Lee Ju-yeol said this month at a news conference that the central bank now forecast gross domestic product will grow 2.6 per cent in 2017, 0.1 percentage point more than its previous estimate in January.

Mr Lee also said interest rate cuts were less necessary than before, but pledged that monetary policy would remain accommodative.

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