Korea Q1 GDP growth likely to rebound on recovery in global demand, fade of domestic political uncertainties: DBS Bank

South Korea’s first quarter gross domestic product (GDP), due to be released on Thursday, is expected to rebound on the back of the recovery in global demand and the fading of domestic political uncertainties.

The country’s q/q growth is expected to rise to 0.8 percent (3.2 percent saar), from 0.5 percent in the previous quarter, with annual growth also rising to 2.8 percent from 2.4 percent. Exports have gathered steam last quarter, as the tailwinds from global recovery offset the headwinds from deteriorating Korea-China ties, DBS Bank Research reported.

Shipments to the major markets including China, Europe and Japan picked up on a broad basis during the January-March period. Rising exports have also boosted capex demand in the manufacturing sector especially electronics, as is evidenced by the upticks in equipment investment index and machinery orders in Q1.

Consumer confidence has not fully recovered from the slump caused by political instability. Further, the labour market has continued to languish, in light of the negative output gap, spare capacity and the fallout from corporate restructuring. An improvement in Q1 GDP should have limited impact on market expectations.

Meanwhile, officials from the central bank and the finance ministry have already flagged the possibility of a Q1 rebound. The BoK has also raised the full-year GDP forecast to 2.6 percent from 2.5 percent at April’s meeting. Further outlook upgrade will require more positive data in the coming months, such as post-election policy stimulus, strong electronics sales in the H2 peak season, or an easing of Korea-China tensions.