South Korean economy likely to expand 2.8 pct this year

The South Korean economic growth rebounded in the second quarter of 2016, accelerating to 3.2 percent year-on-year from first quarter’s 2.8 percent year-on-year. On a seasonally adjusted basis, the South Korean economy grew 0.7 percent, as compared with first quarter’s 0.5 percent. The rebound was widespread with final consumption, net exports and investments all improving in the second quarter from the previous one. Overall, the growth profile continues to be quite resilient in spite of the external headwinds.

“For this year, we see growth firmer at 2.8 percent vs 2.6 percent in 2015”, said Commerzbank in a research note.

Meanwhile, the Bank of Korea had unexpectedly lowered its policy rate in June by 25 basis points to a record low of 1.25 percent. The reduction in rate was warranted due to the weak growth and inflation outlook, noted Commerzbank. At the same time, the central bank and the Korean government would jointly create a KRW 11 trillion fund to recapitalize policy banks. The fund began operation on 1 July and is likely to run through the end of 2017, according to Commerzbank.