Korea: GDP growth remains healthy in Q2
According to a preliminary reading, GDP growth slowed to 2.9% year-on-year in the second quarter, from 3.0% in the first quarter. Q2’s reading shows the slowest yoy growth since Q1 2021.
Private consumption increased 4.0% in the second quarter, which was below the first quarter’s 4.3% expansion. The growth in private consumption was driven by the rollback of Covid-19 measures and came despite a series of rate hikes by the Central Bank. Government spending expanded by 4.1% (Q1: +6.6% yoy). Meanwhile, fixed investment declined at a slower pace of 3.2% in Q2, following the 3.5% contraction logged in the previous quarter.
On the external front, exports of goods and services growth waned to 4.7% in Q2 (Q1: +7.3% yoy). The slowdown could have been driven by softer trade with China, amid the latters zero-Covid policies. In addition, imports of goods and services growth waned to 1.7% in Q2 (Q1: +5.3% yoy), marking the worst reading since Q4 2020.
On a seasonally-adjusted quarter-on-quarter basis, economic growth improved somewhat to 0.7% in Q2, from the previous period’s 0.6% expansion.
Looking ahead, growth is set to slow in the coming months amid rising inflation, monetary policy tightening, weaker global trade, and a rise in domestic Covid-19 cases. More positively, in May the largest-ever supplementary budget was approved by parliament; the ensuing boost to domestic demand should provide some support to the economy.
Analysts at ING commented on the outlook for Q3:
“We expect consumption-driven growth to slow this quarter. The initial pent-up demand-driven spending will normalize soon as high inflation weakens consumers purchasing power. Survey data suggests that consumer sentiment has been hit […However] we do not expect a contraction in the second half of this year. Accommodative fiscal policy will continue to buffer the economic downturn.”
Meanwhile, analysts at Nomura are more bearish:
“We have lowered our 2022 GDP growth forecast to 1.7% from 1.9%, reflecting Q2 GDP growth. In view of a likely global recession and multiple headwinds for consumption growth, we expect a recession to begin from Q3, which will likely persist into H1 2023.”