Korea likely to see modest recovery through rest of year! Expect stronger second quarter growth

Korea likely to see modest recovery through rest of year

We believe that Korea’s economy bottomed out in the fourth quarter of last year. However, the recovery will be quite shallow going forward, so GDP growth will remain below potential levels.

 

Expect stronger second quarter growth

Monthly activity and other high-frequency data suggest second quarter GDP accelerated to 0.5% quarter-on-quarter seasonally-adjusted, from 0.3% in the first quarter, as the contribution of net exports and investments improved, while private consumption ran out of steam. Beyond the second quarter, terms of trade are better but domestic demand is expected to soften on the back of tight monetary and fiscal conditions. We expect annual GDP growth to rise by 0.9% year-on-year in 2023 compared to 2.6% in 2022.

 

Below potential growth to continue in 2H23

✕

 

We agree that final demand from the US and EU is expected to weaken dramatically in the second half of 2023, and China’s reopening will not provide meaningful stimulus to the global economy. Manufacturing PMI readings are currently in the contraction zone of less than 50 in many major economies, including the EU and Japan. Therefore, global demand conditions will not be favourable for Korea's exports to fully recover. 

Nevertheless, we believe Korean exports will continue to improve. Why? We explain it below.