Korea: Economy slumps further in Q2 amid export collapse and MERS outbreak
July 23, 2015
In the second quarter, GDP expanded 2.2% over the same period last year. The expansion was weaker than the 2.5% increase registered in the first quarter and just below the 2.3% rise that the markets had expected. Moreover, the growth tallied in Q2 was the weakest result in over two years. While the outbreak of the Middle East Respiratory Syndrome (MERS) in May undoubtedly weighed on consumer sentiment and tourist arrivals, the impact of the virus on growth seems to have been less than initially feared. However, ongoing decline in the external sector continues to place a significant burden on the economy.
On the domestic side of the economy, private consumption increased 1.6% in Q2, which matched the result from Q1. Fixed investment picked up from a 2.4% increase in Q1 to a 2.6% expansion in Q2, while government consumption was up 3.3% in Q2 after having grown 3.1% in Q1.
On the external front, exports of goods and services dropped from a 0.1% increase Q1 to a 0.9% contraction in Q2, which marked the weakest result since 2009. Imports fell from a 1.9% expansion in Q1 to a 1.1% rise in Q2. As a result, the external sector’s net contribution to overall economic growth deteriorated from minus 0.9 percentage points in Q1 to minus 1.1 percentage points in Q2.
A quarter-on-quarter comparison showed that GDP increased a seasonally-adjusted 0.3% in Q2, which was down from the 0.8% increase tallied in Q1.
Author: Carl Kelly, Economist