Korea: BOK confirms strong economic growth in Q4 2018
March 5, 2019
A second GDP release from the Bank of Korea confirmed the economy grew 3.1% in the fourth quarter of last year compared to the same quarter a year earlier. This was significantly above the 2.0% expansion recorded in the third quarter, although the lower Q3 reading was due to a high base effect. In seasonally-adjusted terms, the economy increased 1.0% in Q4 compared to the previous quarter, up from 0.6% in Q3.
Year-on-year economic growth was driven by surging government spending in Q4, which rose 7.1%, up from 4.6% in Q3. Meanwhile, supported by a lower unemployment rate, private consumption rose 2.5% in Q4, as it did in Q3. Fixed investment continued to show weakness in Q4 and fell a revised 3.8% (previously reported: -3.9% year-on-year); however, this was still a marked improvement from Q3’s 6.6% contraction. Lower investment spending on construction projects also weighed on investment in the quarter.
Exports of goods and services increased a revised 7.2% in Q4 (previously reported: +6.5% yoy), up from the 3.1% rise in Q3. Imports, meanwhile, grew a revised 2.5% in the final quarter of last year (previously reported: +1.6% yoy), contrasting the 1.8% fall in Q3. Overall, the external sector contributed a revised 2.5 percentage points to economic growth in Q4 (previously reported: plus 2.6 percentage points), which is down slightly from Q3’s 2.6 percentage-point contribution.
Looking ahead, government spending is set to continue rising strongly this year with the government’s budget proposal, which was passed on 8 December, scheduling a near 9.5% spending increase compared to 2018, the largest rise since 2009. Moreover, monetary policy will likely remain accommodative by historical standards, supporting fixed investment. A tight labor market should also support private consumption, but lackluster consumer confidence could limit spending increases. Meanwhile, elevated household debt, global economic headwinds largely stemming from protectionism, and volatile oil prices all weigh on the outlook.
Korea GDP Forecast
The Central Bank expects the economy to grow 2.6% in both 2019 and 2020. The analysts surveyed by FocusEconomics this month expect an expansion of 2.5% in 2019, which is unchanged from last month’s estimate. For 2020, our panel also sees an expansion of 2.5%.
Author: Edward Gardner, Economist