Korea: Economy stable in Q2 despite lingering external headwinds
October 24, 2019
According to preliminary data released by the Bank of Korea, the economy grew 2.0% in annual terms in the third quarter, matching the second quarter’s reading and just shy of market analyst expectations of 2.1% growth. In quarter-on-quarter terms adjusted for seasonality, the economy grew 0.4% in Q3, decelerating from the 1.0% expansion in Q2 and also slightly short of market expectations of 0.5% growth.
The steady expansion in the third quarter was primarily driven by a softer fall in fixed investment (Q3: -1.7% year-on-year; Q2: -3.4% yoy), while annual private consumption growth weakened marginally from 2.0% in Q2 to 1.7% in Q3. Moreover, government consumption growth eased but remained robust nonetheless (Q3: +6.8% yoy; Q2: +7.0% yoy), as stimulus efforts continued to help counter the negative impact of slower global growth and U.S.-China trade tensions.
Meanwhile, export growth expanded 1.3% year-on-year after growing 1.2% in the second quarter, and imports expanded 2.0% in Q3 after stalling in Q2. Consequently, the contribution from the external sector nicked 0.2 percentage points from economic growth, down from the 0.5 percentage points positive contribution in Q2.
Going forward, Korea’s external sector will likely continue to grapple with trade protectionism, a slowdown in global demand for tech and a subdued global growth outlook. That said, recent monetary stimulus from the Bank of Korea in the form of two rate cuts since July this year should be propping up domestic demand. In addition, the government’s expansionary fiscal stance, which is committed to ramping up investment in the private sector, and a tight labor market should also help boost the domestic economy.
Author: Steven Burke, Economist