Korea Q2 GDP likely to rebound on rise in private consumption

South Korea’s gross domestic product during the second quarter of this year is expected to rebound, following rise in private consumption, owing to the extension of a sales tax cut on automobiles. However, a weaker picture of exports may exert a drag on GDP growth.

South Korea GDP is expected to rise 3.0 percent q/q at a seasonally adjusted annual rate, modestly higher than the 2.1 percent witnessed during the first quarter. Growth is expected to register around 2.6 percent in 2016 and 2.8 percent in 2017, DBS reported.

In addition, the extension of a sales tax cut on automobiles should support the rebound. The progress of corporate restructuring in shipping and shipbuilding sectors has remained gradual so far, thus its negative impact on the labor market and the broad economy has remained moderate, the report added.

However, downside risks to the forecast are expected to be limited, owing to the comprehensive policy supports provided by the government and the central bank. Further, the fall in interest rates reduces the debt repayment burdens for the companies that suffer financial stress.

Meanwhile, the fiscal stimulus package is expected to lend direct support to domestic growth in the coming quarters, depending on the progress of ratifying and implementing the supplementary budget.