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.
Author: Ricardo Aceves, Senior Economist