South Korean Growth Momentum May Not Hold in Q3

In Q2 of 2013, South Korean GDP growth beat market expectations as government stimulus measures boosted consumption and construction investment. Yet, this expansion may not hold much longer as rise in consumer spending may not be enough to offset still weak industrial sector.

In Q2 of 2013, the GDP accelerated 1.1 percent qoq, its fastest pace in three years, boosted by private and government consumption, exports and construction investment. GDP was up by 2.3 percent yoy, up from 1.5 percent recorded in Q4 of 2012.
In July, exports increased 2.6 yoy, after contracting 1 percent in the previous month, due to higher demand from China and the EU. 
In July, Business Survey Index in the manufacturing sector decreased to 72 index points, the lowest value in five months, due to lower confidence about exports, sales and domestic demand. In June, industrial production shrank for the second consecutive month by 2.6 percent yoy.
In July, inflation rate accelerated for the first time in six months to 1.4 percent, due to higher food and transport costs. On August 8th, the Bank of Korea maintained the benchmark interest rate at 2.5 percent.
In July, consumer confidence remained at 105 index points, the highest level in thirteen months, as households were confident in future improvement in domestic conditions. Retail sales, which have been weak since the second half of 2012, expanded by 0.8 percent yoy in June.
In the first half of 2013, the Korean won depreciated more than 8 percent against the US dollar, due to outflows of foreigner stock investment funds. Yet, since June 24th, the currency gained more than 3.3 percent as the chairman of U.S. Federal Reserve reassured the bank is unlikely to begin slowing its policy of quantitative easing before December.

Joana Taborda |
8/15/2013 11:19:55 AM