Investment in Korea

Korea - Investment

Economy contracts at milder pace in the third quarter

According to a preliminary estimate, GDP declined at a milder rate of 1.3% year-on-year in the third quarter compared to the 2.7% contraction tallied in the second quarter.

On the domestic front, private consumption dropped at a sharper pace of 4.5% year-on-year in Q3 from the 4.0% contraction in Q2, as sporadic new Covid-19 cases led to the imposition of restrictions in Seoul in August. Government spending growth, meanwhile, moderated to 4.5% in Q3 (Q2: +6.1% yoy). However, fixed investment growth picked up to 2.6% in Q3, compared to the 1.9% increase logged in the previous quarter.

On the external front, exports of goods and services fell 3.7% on an annual basis in the third quarter, a softer decline than the second quarter's 13.0% contraction, largely driven by greater demand for IT products amid structural changes to working habits brought about by the pandemic. In addition, imports of goods and services dropped at a slower pace of 5.3% in Q3 (Q2: -8.5% yoy).

On a seasonally-adjusted quarter-on-quarter basis, GDP increased 1.9% in Q3, contrasting the previous quarter's 3.2% contraction and marked the strongest rise since Q1 2010.

Commenting on the near-term outlook, Robert Carnell, regional head of Asia-Pacific research at ING, noted:

“Looking forward to 4Q20, the going is likely to get tougher. Firstly, the bounce in facilities investment is probably not going to be repeated, while demand for construction might well continue to struggle in a world of "work from home". Moreover, the big export gains of 3Q20 will be hard to repeat as the world ex-Asia heads back into lockdowns as the pandemic goes into overdrive again in the US and Europe.”

FocusEconomics panelists see the economy growing 3.3% in 2021, which is unchanged from last month’s forecast. For 2022, they see the economy growing 2.9%.