View of the Hangang river in Seoul, South Korea.
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South Korea has avoided a technical recession as it saved 0.6% compared to the previous quarter, beating expectations, according to estimates in advance.
This was higher than the 0.5% expected by the economists interviewed by Reuters, and an overthrow of the 0.2% contraction observed in the first quarter.
Over one year on the other, the country’s GDP increased by 0.5%, compared to 0% in the first quarter and greater than an expansion of 0.4% expected by the Reuters survey.
The data from the Korean bank has shown that exports of goods and services increased sharply in the second quarter, up 4.2% over the quarter as the shipments of semiconductors, petroleum products and chemicals have increased.
“Net exports were the main engine of growth,” said Louise Loo, responsible for the Asian economy at Oxford Economics, in a note according to the data press release.
LOO noted that export volumes have increased at their fastest rate since the third quarter of 2020, while companies have accelerated expeditions before the planned adjustments of American trade policy, in particular, prices.
Shivaan Tandon, Economics Capital Market economist, said the South Korea sectors outside Korea, such as trade, are likely to fight while global trade growth softened under the spectrum of prices.
“Although the request for EA equipment can continue to take charge of semiconductor exports, we believe that other parts of the export basket will be under pressure,” he adds.
South Korea is currently trying to conclude a trade agreement with the United States, failing that, exports from the country to the United States would be struck by a rate of 25% compared to August 1.
On Thursday, the South Korea Ministry of Finance said that interviews with the United States had been canceled after the US Treasury Secretary Scott Bessent, who carried out pricing negotiations for Trump administration, had a planning conflict, according to Reuters. The report added that Bessent would hold a meeting with the South Korean Minister of Finance Koo Yun-Chèol “as soon as possible”.
Exports of goods and services represent approximately 44% of South Korea GDP in 2023, according to the latest figures from the World Bank, with the United States as the second largest export market.
The South Korean media store Yonhap indicated that Seoul had excluded changes in beef and rice imports as negotiation nuggets in tariff negotiations with the United States.
Domestic Winds
On the inner front, the total consumption of South Korea, which includes private and government spending, increased by 0.7% compared to the previous quarter, a stronger demonstration compared to the 0.1% contraction observed during the first three months of the year.
Public spending, which increased by 1.2% over the quarter, was mainly supplied by an increase in health services, while private expenses, which increased by 0.5% during the same period, was motivated by an increase in expenditure for motor vehicles, as well as by leisure and sports activities.
LOO D’Oxford Economics said that if domestic demand had experienced a turnaround, due to the early effects of the country’s additional budget, private consumption growth has been counterbalanced by a slowdown in the construction and investment sectors of equipment.
The Tandon of Capital Economics has also agreed, adding that “growth rate will probably not last”.
While public spending is expected to support short -term growth, thanks to the adoption of two additional budgets this year, the boost of public spending should be offset by streaks, added Tandon.
Given this, Oxford Economics expects the annual GDP of South Korea to increase by 0.8% from one year to the next in 2025, marking the slowest annual rate since 2020, which could push the BOK to reduce rates.
The BOK held prices during its previous monetary policy meeting on July 10, despite a stable inflation rate and weak growth for the country, choosing to focus on financial stability.
Inflation in South Korea was 2.2% in June, just slightly above the target of 2% of the BOK.
