South Korean economic growth is expected to have recovered in the second quarter in seasonally adjusted terms. According to a Societe Generale research report, the nation’s GDP growth is likely to have accelerated to 0.7 quarter-on-quarter in the second quarter from first quarter’s 0.5 percent growth. Facility investment and consumption are anticipated to have mainly driven the expected rebound in the economic growth, based on the monthly activity data.
According to the flash estimates of the second quarter’s economic growth from the Bank of Korea’s quarterly macroeconomic forecasts, private consumption growth is likely to have risen to 0.9 percent in the second quarter from -0.2 percent in the first quarter. Moreover, facility investment growth is also likely to have rebounded to 2.9 percent from -7.4 percent, said Societe Generale.
Meanwhile, imports and exports are also expected to indicate the same recovery pattern or normalization from the dip. The goods exports growth might accelerate to 2 percent from -2.6 percent, while imports of goods growth are likely to have accelerated to 1.4 percent from -4.6 percent, stated Societe Generale. Hence, net exports are expected to have contributed slightly to the overall GDP growth.
Growth in construction investment is likely to have decelerated to 2.7 percent from 6.8 percent. This implies that its underlying momentum continues to be strong. The factors that might be a drag on the GDP growth might be the ones that are not estimated by the Bank of Korea, such as inventory investment and government consumption. No considerable market impacts from the GDP releases are anticipated as the market participants already know the ‘flash estimates’.
“We maintain our forecast of one more 25bp BoK rate cut in 3Q,” added Societe Generale.
The updated macroeconomic outlook of the Bank of Korea seems to underpin additional monetary easing as it assumes that the quarter-on-quarter pace of GDP growth in the second half of 2016 might be a mere 0.6 percent, evidently below the central bank’s 3 percent annualized potential GDP growth estimate, noted Societe Generale.
