Economy records first contraction since Q4 2022 in the second quarter

GDP declined 0.2% on a seasonally adjusted quarter on quarter basis in the second quarter, contrasting the 1.3% expansion logged in the first quarter and marking the worst reading since Q4 2022. Q2’s contraction contrasted market expectations of a small expansion. On an annual basis, economic growth waned notably to 2.3% in Q2, following the previous period's 3.3% increase.

The quarter-on-quarter downturn was broad-based, with readings for private consumption, public spending, fixed investment and exports all weakening. Private consumption contracted 0.2% in Q2, marking the worst result since Q2 2023 (Q1: +0.7% s.a. qoq). Public spending growth edged down to 0.7% in Q2 (Q1: +0.8% s.a. qoq). Meanwhile, fixed investment plunged at the steepest rate in over two years, contracting 1.3% in the second quarter (Q1: +1.1% s.a. qoq). On the external front, exports of goods and services growth fell to 0.9% in Q2 (Q1: +1.8% s.a. qoq). Conversely, imports of goods and services rebounded, growing 1.2% in Q2 (Q1: -0.4% s.a. qoq).

Our Consensus is for the economy to return to growth in Q3, though growth is expected to remain muted by historical standards.

On the outlook, United Overseas Bank’s Ho Woei Chen said: “The weaker momentum in private consumption and investment suggest that South Korea’s growth may face some limitations in 2H24. We also expect some restocking in the quarters ahead given that inventories have corrected over the past year along with stronger export demand. For now, we maintain our forecast for 2024 GDP growth at 2.8%.” ANZ’s Krystal Tan said: “We think the economy is still broadly on track to meet our full-year 2024 growth forecast of 2.5%, which implies average growth of 0.5–0.6% q/q seasonally adjusted growth in Q3 and Q4. We expect the semiconductor sector to do the heavy lifting. Trade data for the first 20 days of July showed a 57.5% y/y rise in semiconductor exports, and export business surveys and a falling inventory-to-shipment ratio point to a robust outlook.”

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