Korea GDP

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Korea: Economy cools somewhat in second quarter

July 24, 2014

In the second quarter, GDP expanded 3.6% over the same period last year. The expansion came in slightly below the 3.9% increase registered in the first quarter and fell short of the 3.7% increase the market had expected. Q2’s result marked the weakest expansion since Q3 2013.

The slowdown was mainly driven by a deceleration in total consumption. Total consumption grew just 1.6% annually in Q2 (Q1: +2.6% year-on-year), prompted by a notable slowdown in both private consumption (Q2: +1.5% yoy; Q1: +2.5% yoy) and government spending (Q2: +1.8% yoy; Q1: +2.9% yoy). In addition, gross fixed investment increased 3.4% in the second quarter, which came in below the 5.9% expansion observed in the first quarter.

On the external front, growth in exports of goods and services fell from 4.5% in Q1 to 3.8% in Q2. Similarly, imports decelerated from a 3.5% increase in Q1 to a 2.4% expansion in Q2. The external sector’s net contribution to overall economic growth, nonetheless, improved from 0.6 percentage points in Q1 to 1.0 percentage points in Q2.

A quarter-on-quarter comparison showed that GDP increased a seasonally-adjusted 0.6% in Q2, which was down from the 0.9% increase tallied in Q1.

South Korea's government lowered its economic growth forecasts for this year. The administration of President Park Geun-hye now expects the economy to increase 3.7%, down from its previous 4.1% estimate. In order to support growth, the Korean government unveiled a stimulus package worth USD 40 billion. The fund includes measures to back low- and middle-income households to buy homes and government guarantees for loans directed to small businesses.

In July, the Central Bank cut its growth forecasts for this year from 4.0% to 3.8%. For 2015, the Bank sees economic growth picking up to 4.0%, which is also down from its previous estimate of 4.2%. FocusEconomics Consensus Forecast panelists are more pessimistic than the Central Bank. They see the economy growing 3.6% this year, which is unchanged from last month’s estimate. For 2015, the panel projects that the economy will expand 3.7%.


Author:, Senior Economist

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Korea GDP Q2 2014 0

Note: Year-on-year changes of GDP in %.
Source: KOSTAT-KOSIS and FocusEconomics Consensus Forecast.


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