Korea: Economy decelerates in Q2
July 27, 2017
Economic performance in the second quarter was moderate as shown by advance estimates released on 27 July by the Bank of Korea. In annual terms the economy grew 2.7%, down from Q1’s 2.9% rise. Economic growth also decelerated from the previous quarter, coming in at a meager seasonally-adjusted 0.6% in quarterly terms compared to Q1’s 1.1% expansion but meeting market expectations.
The deceleration was largely due to a swing to the downside in exports, especially within the services sector as Chinese tourism fell sharply in Q2 as a result of continuing political tension between China and Korea over the THAAD missile system. Exports of goods and services contracted 0.1% annually as opposed to a 3.9% expansion in Q1. Imports grew 6.5% over the same quarter last year, coming in below Q1’s 9.9% growth.
Domestic demand had a decent performance in Q2 as growth in consumption expenditures, both private (Q1:+2.0% year-on-year; Q2: +2.2% yoy) and public (Q1:+2.7% yoy; Q2: +3.2% yoy), accelerated in Q2. Gross fixed investment grew a notable 10.0% annually. Specifically, facilities investment grew robustly due to increased investment in semiconductor machinery.
This week the Bank of Korea boosted its forecast for GDP growth from 2.6 to 2.8%, expressing confidence in the economic outlook of the economy. Jointly, they held the base rate steady in an effort to support economic growth. Meanwhile, President Moon Jae-in’s plans for job creation and economic stimulus could also provide a much needed boost to the Korean economy.
Author: Lindsey Ice, Economist