South Korea GDP growth likely to hold up at 2.9 pct in 2017, supported by normalisation in domestic politics: Commerzbank

The South Korean economy is expected to hold up at 2.9 percent growth this year, supported by normalisation in domestic politics, continual strong exports performance and proactive policies.

At the start of the year, there were concerns that South Korea would face a drastic slowdown in Q1 due to the political shock from the former President’s impeachment last December. These concerns have now been put to rest with growth accelerating by 0.9 percent q/q in Q1 from 0.5 percent in Q4, Commerzbank reported.

Further, on a y/y basis, growth was firmer at 2.7 percent from 2.4 percent in Q4. This shows the economy is proving to be resilient, helped by the recent rebound in exports and high investment spending. The main growth drivers were exports and investments. Both surged by 5.1 percent q/q and 1.9 percent respectively in Q1 compared to 1.2 percent and -0.1 percent respectively in Q4.

Since late 2016, global manufacturing activities have picked up and commodity prices have stabilised. Consequently, this drove a rebound in exports and capital expenditure by Korean companies, especially in sectors such as semiconductors, automobiles and petrochemicals. Meanwhile, government spending held steady at 0.5 percent, against 0.6 percent previously.

"In terms of monetary policy setting, we expect Bank of Korea (BoK) to stay accommodative by keeping rates on hold at a record low of 1.25 percent given the lack of demand-driven inflationary pressure," the report commented.