South Korean low unemployment rate hints higher growth rate in Q2

Employment rate in South Korean manufacturing, construction and other services has increased after the shock from the MERS outbreak started to fade. As a result, the unemployment rate is expected fall in the coming months. This indicates the economic growth rate will pick up. Therefore, Barclays revised its growth forecasts and expectes the economy to grow at 2.6% year on year in Q2, whereas BoK estimates at 2.8%.

With the potential benefit of further monetary easing diminishing, the next significant policy move is likely to be fiscal, not monetary. Indeed, on 24 July the National Assembly passed a supplementary budget bill of KRW11.5trn, although well short of expectations. Assuming it is delivered by September, the actual growth impact is only likely to be felt in the economy by Q4 and into 2016, argues Barclays. 

There is still a risk of further easing in the remaining months of Q3, but only if incoming data deteriorates further. 
"As such, we maintain our base case for the BoK to stay on hold for the rest of the year, but with the focus of policy in engineering a weaker exchange rate - possibly by stockpiling more essential commodities like fuel", adds Barclays.