Korea: Q3 rebound confirmed, domestic improvements offset external sector weakness
December 3, 2015
The Korean economy rebounded and recorded the strongest growth so far this year in the third quarter. GDP expanded 2.7% over the same period last year in Q3, according to revised data provided by the Bank of Korea. The result was up slightly from the 2.6% reported in the advance estimate and marked an acceleration over the 2.2% growth tallied in Q2. The growth in Q3 reflects that stronger domestic demand, driven in part by government-led stimulus efforts, outweighed the negative effect of an ongoing decline in the external sector as Chinese and global demand slow. Despite the positive result and recent improvements in consumer confidence levels, it is unclear if positive momentum will carry forward as Korea’s important export sector continues to struggle and government stimulus fades.
The growth registered in Q3 was largely supported by gains on the domestic side of the economy. Private consumption picked up from a 1.7% increase in Q2, when the economy was still feeling the effects of the MERS scare, to a stronger 2.1% expansion in Q3. Moreover, fixed investment more than doubled from a 2.4% rise in Q2 to a 5.1% increase in Q3 amid strong property and construction investment. Meanwhile, growth in public spending moderated slightly but remained strong at 3.0% in Q3 (Q2: +3.3% year-on-year) as the government introduced a second stimulus package designed to boost the economy.
On the external front, exports of goods and services swung from a six-year low 0.8% contraction in Q2 to a modest 0.3% increase in Q3. However, imports jumped from a 1.4% expansion in Q2 to a 3.3% increase in Q3. As a result, the external sector’s net contribution to overall economic growth deteriorated from minus 1.2 percentage points in Q2 to minus 1.4 percentage points in Q3. Slowing global demand for Korean manufactured goods, particularly electronics and cars, is burdening the economy and a turnaround is not expected anytime soon.
A quarter-on-quarter comparison confirms the improvement suggested by the annual figures. GDP increased a seasonally-adjusted 1.3% in Q3, which was much stronger than the 0.3% increase tallied in Q2. This figure was revised up from the 1.2% provided in the preliminary estimate.
Author: Carl Kelly, Economist