Korea: Second estimate confirms strong economic growth in Q3
December 1, 2017
According to data released by the Bank of Korea on 1 December, the economy grew an impressive 3.8% in Q3 compared to the same quarter last year. Preliminary data released in October had put growth at a slightly more moderate 3.6%. This more comprehensive estimate from the Bank of Korea showed that growth comfortably outpaced Q2’s 2.7%. In seasonally-adjusted quarterly terms, growth was 1.5% in Q3, up from the 1.4% rate estimated in October and higher than the 0.6% rate in Q2.
Consumption dynamics were confirmed to have been strong according to the December-released estimate: Private consumption growth was revised upward to 2.5% year-on-year (previously estimated: +2.4% year-on-year; Q2: +2.3% yoy) and government consumption growth was left unchanged at 4.6% (Q2: +3.1% yoy). Government consumption growth was driven by spending on health insurance benefits. Fixed investment growth, meanwhile, was revised higher to 9.2% compared to the same quarter last year (previously estimated: +9.1% yoy; Q2: +9.6% yoy).
In terms of the external sector, growth in exports was left unchanged at 5.0% in Q3 compared to the same quarter last year. Strong demand for Korean semiconductors, chemicals and automobiles more than outweighed the negative impact from fewer Chinese tourists on exports in the quarter. Growth in imports was revised upward to 8.5% (previously estimated: +8.4% yoy). Due to this upward revision, the external sector subtracted 1.6 percentage points from overall GDP growth in Q3 (previously estimated: minus 1.5 percentage points; Q2: minus 3.1 percentage points).
On 5 December, the parliament approved the government’s budget for the 2018 fiscal year. The budget includes a 4.6% increase in spending compared to in fiscal year 2017. Strong government spending should continue to boost the economy next year, ensuring the outlook remains positive. In addition, an already-strong external sector could be boosted by the agreement made on 31 October by the governments of South Korea and China to improve diplomatic relations, which could boost South Korean tourism exports.
Korea GDP Forecast
The Central Bank expects the economy to grow 2.9% in 2018. The analysts surveyed by FocusEconomics this month see slightly slower growth of 2.8% in 2018, which is up 0.1 percentage points from last month’s estimate. For 2019, the panel projects the economy will grow 2.7%.
Author: Edward Gardner, Economist