South Korea’s economy may return to growth in second-quarter, but Japan row a new risk: Reuters poll By Reuters

South Korea's economy may return to growth in second-quarter, but Japan row a new risk: Reuters poll By Reuters



By Joori Roh

SEOUL (Reuters) – South Korea’s economy probably returned to growth in the second quarter after a surprising contraction in the first, helped mainly by government spending, a Reuters poll found on Tuesday.

Asia’s fourth-largest economy is estimated to have expanded by a seasonally adjusted 1.0% in the April-June period in sequential terms, according to the median forecast in the survey of 12 economists with estimates ranging from 0% to 1.3%.

It would be the best reading since the first quarter of 2018 but the 0.4% contraction in the January-March period brings the average for the first two quarters of 2019 to just 0.3%.

“The government has since implemented the already approved social infrastructure investment and welfare spending, boosting growth in the second quarter,” said Park Chong-hoon, economist at Standard Chartered Bank Korea, referring to the slow implementation of budget spending earlier this year.

In year-on-year terms, second-quarter growth was expected to quicken slightly to 2.0% from 1.7% in the January-March period, according to the survey. Sixteen economists provided forecasts for year-on-year growth.

Despite the likely improved momentum in the second quarter, private-sector spending remains mostly depressed due to a year-long U.S.-China trade dispute that has weighed on global demand and Korea’s exports.

Last week, South Korea’s central bank delivered a surprise interest rate cut, while shaving this year’s growth forecast to 2.2%, the lowest in a decade, as a brewing dispute with Japan piled further pressure on the economy. Japan has tightened export controls of high-tech materials used in smartphone displays and chips to South Korea.

The Bank of Korea said in a scheduled report to parliament on Tuesday that Japan’s export curbs on key chip and display production materials were one of the top three risks to the domestic economy.

“Despite the Bank of Korea’s pre-emptive rate cut, it is difficult to expect a clear rebound in the second half due to a delay in the extra budget approval and uncertainties in trade conditions,” said Ahn So-eun, an analyst at IBK Securities.

South Korea’s exports have fallen on-year for seven months in a row and shipments in the first 20 days of June were down 13.6% on year.

Bank of Korea Governor Lee Ju-yeol told a news conference on Thursday the central bank has still room to respond to any further worsening in the economy, which analysts thought signaled the possibility of further rate cuts this year.

The BOK’s deputy governor said later that second-quarter growth was expected around the lower-2% level in annual terms.

The Bank of Korea will release advance estimates of second-quarter gross domestic product at 8:00 a.m. on Thursday (2300 GMT on Wednesday).

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