Korea: Comprehensive data shows that the economy lost growth momentum in Q3
December 4, 2018
According to comprehensive data released by the Bank of Korea on 4 December, GDP increased 2.0% in the third quarter from the same quarter last year. This matched the preliminary reading released in October but was still significantly down from the 2.8% expansion in the second quarter. In quarter-on-quarter seasonally-adjusted terms, there was a 0.6% increase in GDP in Q3, which matched both the preliminary reading and Q2’s growth rate.
Annual private consumption growth in Q3 was put at 2.5%, down from both the preliminary reading of 2.6% and the previous quarter’s increase of 2.8%. This was likely in part due to falling consumer confidence. Government consumption rose a revised 4.6% in the third quarter (previously reported: +4.7% year-on-year, Q2: +4.8% yoy). Meanwhile, fixed investment fell a revised 6.6% in Q3, below both the preliminary reading of minus 6.5% and Q2’s decrease of 1.3%. The poor investment performance in Q3 was largely due to a slump in spending on construction and business investment.
Exports of goods and services increased 3.1% in Q3, which matched the preliminary reading but came in below the 4.8% rise in Q2. Imports fell a revised 1.8% in Q3, down from the 1.2% fall previously reported and the 2.0% increase in Q2. Overall, the external sector contributed a revised 2.6 percentage-points to economic growth in Q3, up from the previously reported 2.3 percentage-point contribution and the 1.5 percentage-point contribution in Q2.
Looking ahead, the economy is forecast to grow at a broadly steady rate. Higher government spending is on the cards as outlined by the Moon administration’s budget for 2019, which sets out the largest government spending increase in a decade. Moreover, monetary policy will remain accommodative by historical standards. However, elevated household debt, trade protectionism and an economic slowdown in China all weigh on the outlook.
Korea GDP Forecast
The Central Bank expects the economy will grow 2.7% in 2019. The analysts FocusEconomics surveyed this month expect an expansion of 2.6% in 2019, which is down 0.1 percentage points from last month’s estimate. For 2020, our panel again sees an expansion of 2.6%.
Author: Edward Gardner, Economist