Korea growth momentum likely to ease temporarily and notably in Q4 this year, says DBS Bank

South Korea growth momentum is expected to ease temporarily and notably in Q4 this year. This is because manufacturers have front-loaded production and shipments ahead of the October long holiday. The unfavorable calendar effects will kick in this quarter and likely cause a technical payback in GDP growth figures, DBS Group Research reported.

The economy grew 5.8 percent q/q (saar) in the third quarter, according to the preliminary GDP estimate released this morning. This is a strong rebound compared to the H1 average of 3.4 percent, and the highest growth rate seen since Q3 2010. It also beat the consensus and our forecasts by a wide margin. The upside surprises mainly came from external demand. Exports of goods and services surged by 26.9 percent in Q3, well-outpacing imports growth of 19.4 percent.

Net exports, as a result, contributed 3.7ppt to the 5.8 percent headline growth last quarter. Domestic demand remained solid on the other hand, but the pace of expansion has eased compared to the peak in Q2. Private consumption expenditures grew 2.9 percent, a slower rate than 4.3 percent in Q2 but still above the five-year average of 2.2 percent. Gross fixed capital formation increased 4.6 percent, also slower than the 7.4 percent in the previous quarter.

Given that GDP growth has averaged 3.1 percent y/y in the first three quarters of 2017, there are now some upside risks to our annual forecast of 2.8 percent. Exports are likely to remain buoyant in the Q4 2017-Q1 2018 period, thanks to rising demand from the iPhone supply chains, rebound in commodities prices and pickup in global economic activities. Consumption is expected to maintain a modest recovery trend into next year, on the back of an increase in social welfare support, minimum wage hikes and labor market improvement.

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