South Korea’s economic growth likely slowed sharply in second quarter: Reuters poll

By Devayani Sathyan

BENGALURU (Reuters) – After more than a year of moderate expansion, South Korea’s economic growth likely slowed to a near halt last quarter as higher borrowing costs held back domestic demand despite robust exports, a Reuters poll of economists found.

On a quarterly basis, the export-led economy was expected to have expanded a seasonally adjusted 0.1% in the second quarter, according to the median forecast of 21 economists, a sharp slowdown from the 1.3% quarterly growth in January-March.

Seven economists forecast an outright contraction and two expected the economy to flat line. If the median forecast is realised, it would be the slowest growth since late 2022.

On an annual basis, gross domestic product (GDP) likely expanded 2.5%, according to the median forecast from 25 economists polled July 15-22, down from 3.3% in the first quarter.

The data will be published on July 25.

“We expect… GDP data to show growth stalling following a strong expansion in Q1 2024. While high frequency data continued to point to robust exports and manufacturing, these were likely offset by weaknesses in domestic demand,” noted Krystal Tan, an economist at ANZ.

Growth in Asia’s fourth-largest economy has been largely export-driven since its reopening after the COVID-19 pandemic, while domestic demand has remained subdued as consumers grapple with high borrowing costs.

South Korean households are among the most indebted globally.

“Domestic demand requires support from a less-restrictive monetary policy setting; with inflation converging towards its 2% target, an easing pivot by the Bank of Korea is likely by Q4 2024,” Tan added.

The Bank of Korea left its key interest rate unchanged at a 15-year high of 3.50% for the 12th straight meeting in July. However, the central bank said it was time to prepare for a policy pivot.

The latest Reuters poll indicated the first rate cut is likely to come next quarter.

Growth in South Korea is forecast to average 2.5% this year as a faltering economic recovery in China, its largest trading partner, poses a risk alongside domestic concerns.

It was expected to slow to 2.2% next year, a separate Reuters poll showed.

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