South Korea GDP improves to 3.2% growth on year in Q2 on consumption, construction

The building of the Bank of Korea in Seoul.
The building of the Bank of Korea in Seoul. PHOTO: REUTERS

SEOUL (REUTERS) - South Korea's economy grew 0.7 per cent in April-June over the previous quarter, the central bank estimated on Tuesday (July 26), accelerating modestly from the previous three-month period as domestic consumption and capex improved.

It follows 0.5 per cent growth for the first quarter. It was in line with a median 0.7 per cent gain on a seasonally adjusted basis tipped in a Reuters survey of 18 analysts.

It matched a 0.7 per cent growth in the fourth quarter of last year on a sequential basis.

The economy expanded 3.2 per cent in the June quarter from a year earlier, outperforming a median 2.9 per cent forecast in the Reuters poll and 2.8 per cent growth in the first quarter. It was the fastest annual growth since the third quarter of 2014.

Tuesday's data offered some hope as Asia's fourth-largest economy struggles to escape low growth. Exports have kept falling since January last year (2015) while domestic consumption has also shown signs of weakening.

"Growth at 0.7 per cent comes as a relief but construction will probably slow from now on. GDP growth in annual terms is likely to ease to the 2-per cent range in the third and fourth quarters," said Mr Park Jung-woo, an economist at Korea Investment and Securities.

South Korea will submit a US$9.7 billion (S$13.2 billion) supplementary budget to Parliament later on Tuesday that will focus on creating 68,000 new jobs to make up for severe job cuts as the struggling shipping and building industries are overhauled.

"The government's extra budget will only partially affect this year's growth and this may lead to more demand for another rate cut," said Mr Park.

In a surprise move, the Bank of Korea cut interest rates to a record-low 1.25 per cent in June, and a majority of market analysts see one more cut by year-end.

Capital investment notched a 2.9 per cent gain after tumbling 7.4 per cent in the first quarter, which was the fastest rise seen since a 3.5 per cent rise in the fourth quarter of 2014. The gain was attributed to an increase in transport equipment investment.

The Bank of Korea and the government currently estimate this year's GDP growth at 2.7 per cent and 2.8 per cent, respectively.

Bank of Korea estimates showed private consumption rose by a seasonally adjusted 0.9 per cent in the second quarter after slipping 0.2 per cent in the January-March period, thanks to demand for semi-durable goods like clothing. It was still weaker than a 1.4 per cent rise in the October-December period last year.