Korea: Growth unexpectedly gains momentum in Q4
January 22, 2020
According to preliminary data released by the Bank of Korea, the economy grew 2.2% in annual terms in the fourth quarter, slightly faster than the third quarter’s 2.0% reading and beating market analyst expectations of 1.9% growth. In quarter-on-quarter terms adjusted for seasonality, the economy grew 1.2% in Q4, accelerating from the 0.4% expansion in Q3 and also surpassing market expectations of 0.8% growth. Overall, the economy grew 2.0% in 2019, representing the weakest annual growth rate since 2009.
The stronger expansion in the fourth quarter was primarily driven by a solid contribution from the external sector: Export growth expanded 3.1% year-on-year after growing 1.8% in the third quarter, and imports expanded a modest 0.6% in Q4 after jumping 2.3% in Q3. Consequently, the external sector contributed 1.1 percentage points to economic growth, after subtracting 0.1 percentage points in Q3.
On the domestic front, fixed investment fell again but at a softer pace (Q4: -0.3% year-on-year; Q3: -2.1% yoy). Meanwhile, annual private consumption growth weakened marginally (Q4: +1.7%; Q3: +1.8% yoy) and government consumption growth eased but remained robust nonetheless (Q4: +6.7% yoy; Q3: +6.9% yoy).
This year, economic growth is expected to accelerate after slowing to a one-decade low in 2019. A recovery in the semiconductor industry, which weighed heavily on the manufacturing sector last year, is expected to drive the acceleration. Stronger government investment into major infrastructure projects should also provide some impetus to economic activity, while the BOK’s accommodative monetary stance should support private sector credit growth and, in turn, household spending. That being said, uncertainty over trade tensions with Japan and elevated household debt remain key downside risks to the economic outlook.
Author: Steven Burke, Economist