Korea: Second GDP release confirms sharp slowdown in Q1
June 3, 2019
According to a second GDP release, the economy grew 1.7% in the first quarter compared to the same quarter a year earlier, down from the 1.8% previously reported and the 2.9% growth logged in the fourth quarter of last year. In seasonally-adjusted terms, the economy shrank 0.4% in Q1 compared to the previous quarter, down from the 0.3% decrease previously reported and contrasting the 0.5% expansion in Q4.
A further deterioration in fixed investment (Q1: -8.6% year-on-year; Q4: -4.2% yoy) was confirmed to be primarily responsible for the economic slowdown in Q1, partly due to the struggling semiconductor sector. Alongside the downbeat investment reading, private consumption growth (Q1: +1.9% yoy; Q4: +2.8% yoy) and government consumption growth (Q1: +5.5% yoy; Q4:+7.1% yoy) both slowed.
Exports of goods and services decreased 0.2% in Q1, contrasting the 6.7% growth in Q4. Imports, meanwhile, plunged 5.1%, contrasting the 2.4% increase in Q4. Consequently, the external sector contributed 2.8 percentage points to economic growth in Q1 (Q4: +2.5 percentage points), the largest contribution since Q1 2013.
Looking ahead, growth will likely be moderate, as external pressures—chiefly a synchronized global slowdown in demand for technology and the escalating U.S.-Sino trade spat—weigh on exports. The government plans to boost the economy with a KRW 6.7 trillion (USD 5.9 billion) supplementary budget, which it unveiled on 23 April and is awaiting parliamentary approval. However, the bill is only making its way through Parliament very slowly and may not prove as impactful as the government would wish. This skepticism is summarized by Robert Carnell, chief economist at ING, who noted: “The government has a KRW 6.7tr stimulus package ready for implementation. They say it could be worth 0.1pp of GDP. That seems about twice as much as is likely”.
Author: Edward Gardner, Economist