Economy rebounds in the second quarter

Economic activity rebounds: GDP rebounded in Q2, expanding 0.6% on a seasonally adjusted quarter-on-quarter basis (Q1: -0.2% s.a. qoq), marking the best result since Q1 2024 and exceeding market expectations. In annual terms, GDP grew by 0.5% in Q2, contrasting with Q1’s flat reading.

Exports plus public and private spending fuel rebound: The economy returned to growth on a sequential basis due to rebounds in public and private consumption plus exports. Household spending increased 0.5% in Q2, the best reading since Q1 2024 (Q1: -0.1% s.a. qoq), buoyed by increased expenditure on motor vehicles and services; the resolution of June’s presidential elections helped boost consumer sentiment after a period of political turmoil. The newly elected president has proposed a supplementary budget to counter challenges from U.S. tariffs and weak consumer spending. Meanwhile, public consumption growth also picked up, rising to 1.2% in Q2 after having stagnated in Q1, boosted by increased health care benefits. Finally, exports of goods and services rose by 4.2% in Q2, which marked the best reading since Q3 2020 (Q1: -0.6% s.a. qoq), boosted by shipments of semiconductors, petroleum products and chemicals. On the other hand, fixed investment dropped at a more pronounced pace of 1.2% in Q2, following a 1.1% contraction in Q1. Furthermore, imports rebounded 3.8%, the highest increase since Q1 2023 (Q1: -1.1% s.a. qoq) as energy demand surged.

GDP to continue expanding in H2 2025: Our Consensus is for GDP growth to maintain Q2’s momentum in the remainder of the year, aided by progressive monetary easing and reduced economic uncertainty following the new South Korea-U.S. trade agreement. Weaker-than-expected global demand because of trade frictions is a downside risk to GDP growth.

Panelist insight: Nomura’s Jeong Woo Park noted: “The tariff deal [with the U.S.] can add strength to a growth recovery in H2 following the roll out of the second extra budget, in our view. Indeed, in a separate report, economic activity picked up in June, with retail sales growth rising after three months of decline. Also, the trend-adjusted leading economic indicator continued to rise in June, suggesting the growth recovery is gaining momentum. We maintain our 2025 GDP growth forecast of 1.0% y-o-y, with a view of an H2 recovery.”

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