South Korea revised Q2 growth better than estimated but outlook still gloomy

A woman walks past clothing displayed by various prices at a shopping district in Seoul on July 26, 2016.
A woman walks past clothing displayed by various prices at a shopping district in Seoul on July 26, 2016.PHOTO: AFP

SEOUL (REUTERS) - South Korea's economy grew 0.8 per cent in the second quarter, revised data from the Bank of Korea showed on Friday (Sept 2), but third quarter growth faces downside risks including from delays in ratifying a much-anticipated supplementary budget.

The June quarter's 0.8 per cent expansion is marginally better than a 0.7 per cent rise estimated earlier by the bank. In annual terms, growth was at 3.3 per cent, also slightly above an earlier estimate of 3.2 per cent.

Friday's figures come as production and inflation data from July onwards show the economy may fail to rebound and even decline, hit by sluggish exports and weak consumption.

July factory output declined 0.6 per cent from June, while inflation slowed to a one-year low in August.

A finance ministry official said growth was likely to slow in the third quarter from the second as a temporary tax cuts on cars expired. Still, he expected the economy to post about 2.8 per cent growth this year, in line with the government forecast.

Approval of a supplementary budget would protect the economy from a sharp downturn, he added, assuming that the ruling and opposition parties approve the 11 trillion won spending shortly, as agreed at the parliament's budget committee. Approval has been delayed as parties contested political issues.

"Judging from the full set of data, we maintain the view that GDP growth will slow to about 2.5 per cent in Q3 from 2.9 per cent in Q2," DBS Group Research wrote in a report.

"More downside risks will lie ahead in the fourth quarter. The progress of corporate restructuring is picking up, which should have negative spillover effects on the broad economy," it said.

A government-led restructuring of debt-ridden shipbuilding and shipping industries is an ongoing concern for an economy centred on manufacturing and exports.

Hanjin Shipping Co, the nation's largest container shipping company, applied for court receivership this week after lenders halted financial support.

Finance minister Yoo Il-ho said on Wednesday that the government will take measures to minimise the economic and industrial impact from the Hanjin case.