Korea: Comprehensive data shows that the economy maintained its growth momentum in Q2
September 3, 2018
According to comprehensive data released by the Bank of Korea on 3 September, GDP increased 2.8% in the second quarter from the same quarter last year. This was 0.1 percentage points down from a preliminary estimate released on 26 July but still matched the rate of expansion in Q1. In seasonally-adjusted terms, there was a 0.6% expansion in Q2 compared to the previous quarter (previously reported: +0.7% quarter-on-quarter), down from the 1.0% increase in Q1.
Annual private consumption growth in Q2 was confirmed at 2.8%, matching the preliminary estimate but down from the 3.5% expansion recorded in Q1. This slowdown coincided with a fall in consumer confidence, with optimism falling to its lowest level in a year. Moreover, unemployment increased in H1 2018 compared to H2 2017. Government consumption also grew by its preliminary estimate, with a reading of 4.8%. Although this was one percentage point down compared to Q1, it was still robust thanks to the extra FY 2018 budget spending, which was approved by parliament on 21 May and contained USD 3.8 billion worth of additional spending. Meanwhile, fixed investment fell 1.3% in Q2, down 0.2 percentage points from the preliminary estimate and contrasting Q1’s 3.7% growth. The conclusion of major capital expenditure projects in the technology sector in the prior quarter reduced business investment in Q2.
Exports of goods and services increased 5.0% in Q2, slightly less than previously estimated (+5.2% year-on-year) but significantly more than the 1.6% increase recorded in Q1. Exports were boosted by strong sales of Korean semiconductors abroad, as well as by an increase in Chinese tourist arrivals. Imports, meanwhile, grew 2.0% in Q2, less than the 2.4% preliminary estimate and well below the 4.2% expansion in Q1. Overall, the external sector contribution to economic growth in Q2 remained unchanged at the preliminary estimate’s 1.6 percentage points boost, which contrasted Q1’s detraction of 1.4 percentage points.
Looking ahead, increased government spending thanks to the expansionary FY 2018 ordinary budget, coupled with pending spending from the extra FY 2018 budget, should support economic growth in the coming months. Moreover, strong stimulus is on the cards for the ordinary fiscal budget in FY 2019. In terms of private consumption, unusually warm summer weather could boost spending in Q3. Elevated household debt levels, rising global trade tensions, higher oil prices and signs of a slowdown in China, however, will weigh on prospects in the coming months.
Author: Edward Gardner, Economist