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Korea: Economy recovers in Q3, stronger domestic demand offsets ongoing external sector weakness

October 23, 2015

In the third quarter, GDP expanded 2.6% over the same period last year. The expansion was stronger than the 2.2% increase registered in the first quarter and just above the 2.5% rise that the markets had expected. Q3’s result comes as welcome news after the growth tallied in Q2 marked the weakest result in over two years. The growth in Q3 suggests that stronger domestic demand, driven in part by government-led stimulus efforts, outweighed the negative effect of an ongoing decline in the external sector as Chinese and global demand slows. Despite the pick-up in growth, it is unclear if the recovery will be sustained in the final quarter of the year.

On the domestic side of the economy, private consumption increased 2.0% in Q3, which was up from the 1.7% increase tallied in Q2. Fixed investment more than doubled from a 2.4% increase in Q2 to a 5.0% expansion in Q3, while government consumption was up 3.2% in Q3 after having grown 3.3% in Q2.

On the external front, exports of goods and services improved from a 0.8% contraction in Q2, which marked the weakest result since 2009, to a modest 0.6% increase in Q3. Imports jumped from a 1.4% expansion in Q2 to a 3.5% rise in Q3. As a result, the external sector’s net contribution to overall economic growth deteriorated from minus 1.2 percentage points in Q2 to minus 1.4 percentage points in Q3.

A quarter-on-quarter comparison showed that GDP increased a seasonally-adjusted 1.2% in Q3, which was up from the 0.3% increase tallied in Q2 and marked the strongest result in more than five years.

The Bank of Korea sees the economy growing 2.7% in 2015 and 3.2% in 2016. FocusEconomics Consensus Forecast panelists foresee the economy growing 2.5% this year, which is down 0.1 percentage points from last month’s estimate. For 2016, the panel projects that the economy will expand 2.9%, which is down 0.2 percentage points from last month’s forecast.


Author:, Economist

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Korea GDP Q3 2015

Note: Year-on-year changes of GDP in %.
Source: Bank of Korea (BoK) and FocusEconomics Consensus Forecast.


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