South Korea Q2 GDP growth slows on weaker private consumption, exports

SINGAPORE (ICIS)–South Korea’s economy posted a slower second-quarter annualized growth of 2.3% compared with the 3.3% pace set in the preceding quarter amid sluggish domestic consumption, preliminary central bank data showed on Thursday.

Q2 private consumption rose by 0.9% year on year, slowing from the 1.0% expansion in the first three months of 2024, the Bank of Korea (BoK) said in a statement.

Manufacturing for the period rose by 4.5%, slowing from the 6.5% growth registered in January-March; while exports grew at a slower pace of 8.7% compared with the 9.1% expansion in the first three months of the year.

On a quarter-on-quarter seasonally adjusted basis, the South Korean economy unexpectedly shrank by 0.2% in April-June, reversing the 1.3% growth posted in the first three months of this year.

“We had expected South Korea’s GDP to slow sharply, but not to the point of falling into contraction territory,” Dutch banking and financial information services provider ING said in a note.

Q2 domestic growth components were weak except for government spending, which rose by 0.7% quarter on quarter, it said.

Private consumption, construction, and facility investment dropped by 0.2%, 1.1% and 2.1%, respectively,

The downside surprise came mainly from trade, as imports grew faster than exports, ING said.

Q2 export growth moderated to 0.9% quarter on quarter, just half the 1.8% increase posted in Q1. Exports in Q2 were supported by higher shipments of chemicals and motor vehicles.

Meanwhile, import growth rebounded to 1.2%, compared with a contraction of 0.4% in Q1, mainly buoyed by higher imports of crude oil and petroleum products.

“Given the weaker-than-expected second quarter 2024 GDP, we have revised the annual GDP outlook downwards from 2.6% year-on-year to 2.3%,” ING said.

“We recently warned that the BOK would face challenges in its monetary policy decision as inflation cools towards 2% and sluggish domestic growth supports a rate cut, but at the same time, concerns about rising household debt are growing.”

In its latest forecast in May, the BoK raised its 2024 GDP growth forecast to 2.5% from 2.1% previously amid strong exports driven by robust chip demand.

For inflation, the forecast average was unchanged at 2.6% for this year.