Korea: GDP picks up speed in Q2
September 5, 2016
Economic activity in Korea held up well in the second quarter, in line with the resilience seen in wider Asia. The economy expanded 3.3% year-on-year in Q2 according to a second GDP estimate, up slightly from the 3.2% increase reported previously. Q2’s result marked an acceleration over the 2.8% increase in Q1 and was the fastest growth rate since Q3 2014.
The revised print confirmed the strong contribution to growth from private consumption and fixed investment. Household consumption increased a revised 3.3% in the second quarter (Q1: +2.2% year-on-year), mainly boosted by the extension of the tax cut on car purchases that had ended in June and discounts on home appliances. In addition, gross fixed capital formation jumped from a 3.1% rise in Q1 to a 5.3% expansion in Q2, spurred by a construction boom. Government spending grew 3.6% annually in Q2, decelerating slightly from the 4.5% increase in Q1. After weeks of vigorous debate, the government’s supplementary budget was passed on 2 September. Its notable size (0.6% of GDP) will allow the government to aggressively front-load spending.
Meanwhile, exports of goods and services increased 1.9%, up slightly from the 1.7% initially reported. Exports grew faster than the 0.7% rise in Q1. Due to strong domestic demand, imports accelerated from a 1.9% increase in Q1 to a 3.3% expansion in Q2. As a result, net exports detracted 0.6 percentage points from overall economic growth, following a similar detraction in Q1.
GDP expanded a seasonally adjusted 0.8% in Q2 according to sequential data, which was faster than the 0.5% increase registered in Q1 and the fastest quarter-on-quarter increase since Q3 2015.
Author: Ricardo Aceves, Senior Economist