South Korean GDP unexpectedly expands at stronger pace in Q2; growth momentum unlikely to continue

The South Korean economy expanded surprisingly at a stronger pace in the second quarter of 2016, growing 3.2 percent year-on-year. Stronger capital investment and domestic consumption mainly drove the robust economic growth in the second quarter.

The second quarter year-on-year growth exceeded the first quarter’s year-on-year growth of 2.8 percent. On a quarter-on-quarter basis, the economy grew 0.7 percent in the second quarter, as compared with 0.5 percent growth registered in the first quarter. However, this economic momentum is unlikely to continue, according to analysts.

Reuters, citing ANZ analysts, stated that the difficulties that would be faced by the South Korean economy “in terms of the scope of corporate debt restructuring in a low-trade environment (and with monetary policy nearing its lower limit) are formidable”.

Delving into details, private consumption grew 0.9 percent on sequential basis in the second quarter, owing to the increase in expenditures on durable goods and semi-durable goods, such as clothing. Meanwhile, investment in construction and facilities rose 2.9 percent each on sequential basis.

Within construction, the growth was focused around residential building construction, whereas within facilities, gains were focused on transport equipment. Meanwhile investment in intellectual property products grew 1.1 percent, focusing around software investment, stated the Bank of Korea.

Exports growth in the second quarter came in at 0.9 percent on sequential basis, as goods exports such as semiconductor, petroleum and chemical products rose. Imports rose 1.9 percent, predominantly due to rises in automobiles and crude oil. Meanwhile, manufacturing grew 1.3 percent and services rose 0.5 percent.

Growth in services was driven by gains in wholesale & retail trade, food services & accommodation and cultural & other services, countering a drop in transportation & storage, real estate & leasing.

At present, the Bank of Korea forecasts the economy to grow 2.7 percent for the whole of 2016, whereas the Korean government estimates GDP to grow 2.8 percent.