Korean GDP growth rate unlikely to follow upward trend in 2015

The Korean economy is highly dependent on international trade (exports account for 55% of GDP) and thus remains vulnerable to external shocks, such as the slowdown of activity in China and other trading partners, and the weakness of the yen. Therefore, upturn in growth seen in 2014 (GDP rose 3.3%, after 2.9% in 2013) will not continue in 2015.

The marked slowdown in Korea's engines of growth is likely to prevent real GDP growth from exceeding 3% in 2015 and 2016, states BNP Paribas. Similar to the external sector, the domestic economic activities are also weak to boost the GDP growth. Korean domestic demand is depressed by the rising unemployment rate and households' indebtedness, while global economic prospects remain uncertain. 

Data for the first quarter of 2015 showed, Korean GDP growth slowing for the fourth consecutive quarter, to 2.4% y/y from 2.7% in the fourth quarter of 2014. The poor performance of exports (both in value and volume) and lower-than-expected public spending, the traditional engines of Korean growth, contributed to this slower growth. Recently, the persistent weakness of exports (down nearly 6% y/y since January) and fears of a prolongation of the MERS coronavirus epidemic have pushed the authorities into bringing forward a new set of stimulus measures, says BNP Paribas.