South Korea economic growth likely to slow further in Q4 2016, stabilize in H1 2017

The economic growth of South Korea is expected to further slow down during the fourth quarter of this year, before stabilizing in the first half of next year.

The economy grew 2.8 percent q/q on a seasonally adjusted annual rate in 3Q, a slower rate compared to 3.2 percent in 2Q but slightly better than the consensus expectations. The slowdown mainly came from exports (3.2 percent vs. 4.4 percent in 2Q) and private consumption (1.8 percent vs. 4.0 percent).

By contrast, gross fixed capital formation continued to grow strongly in 3Q (8.7 percent), driven by construction investment (16.6 percent). Government consumption also increased steadily (5.8 percent).

GDP growth is expected to slow further and more notably in 4Q16 before stabilizing in 1H17. Barring a contraction in 4Q16, however, the full-year growth should still match the BoK’s forecast of 2.7 percent. Risks will fall on the 2017 forecast (2.8 percent).

"Expect the BoK to closely watch the downside growth risks in the upcoming quarters and maintain an easing bias on monetary policy," DBS commented in its latest research note.