Korea skyline

Korea GDP Q1 2019

Korea: Economic growth plunges to a near-decade low

According to preliminary data released by the Bank of Korea, the economy grew 1.8% in the first quarter compared to the same quarter a year earlier. This was significantly down from the 3.1% expansion registered in the fourth quarter of last year, weighed on mainly by a notable contraction in gross fixed capital formation and a slowdown in final consumption expenditure growth. In seasonally-adjusted terms, the economy shrank 0.3% in Q1 compared to the previous quarter, contrasting the 1.0% expansion in Q4. All growth figures were worse than market analysts’ expectations.

The worst performer in the first quarter was fixed investment, which posted the sharpest contraction in almost a decade (Q1: -8.4% year-on-year; Q4: -3.8% yoy). Meanwhile, private consumption growth softened to 1.9% in Q1 (Q4: +2.5% yoy), likely the result of an uptick in the unemployment rate and pessimism among consumers. Government consumption growth also slowed, though remained robust at 5.2% (Q4: +7.1% yoy).

Growth in exports of goods and services slumped to a scant 0.2% in Q1, down from the 7.2% rise clocked in Q4. Imports meanwhile fell 5.4% in Q1, contrasting the 2.5% expansion logged in Q4. Consequently, the external sector contributed 3.1 percentage points to economic growth in Q1, up from the 2.5 percentage-point contribution in Q4.

Looking ahead, growth will likely be moderate, as external pressures—chiefly a synchronized global slowdown in demand for technology and the U.S.-Sino trade spat—continue to weigh on exports. The government plans to help boost the economy with a supplementary budget, which is currently awaiting parliamentary approval. However, the stimulus may not be as impactful as the government desires. Chief economist at ING, Robert Carnell, noted, “The government has a KRW 6.7tr stimulus package ready for implementation. They say it could be worth 0.1pp of GDP. That seems about twice as much as is likely”.

The BoK may also add monetary stimulus to keep the economy afloat. Analyst Young Sun Kwon from Nomura argues, “We believe policymakers will coordinate macro policies and thus maintain our out-of-consensus call that the Bank of Korea (BOK) will deliver two 25bp policy rate cuts to 1.25% within 12 months”.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest