South Korea's GDP figures match expectations

South Korea's 4Q15 GDP (preliminary) came out this morning. Headline growth slowed to 2.3% (QoQ saar), in line with the consensus forecast, notably down from 5.3% in the previous quarter. Gross fixed capital formation contracted sharply by -10.9%, reversing the 12.8% gains in the prior quarter. This largely reflected the renewed slowdown in property market activities, as the boosting impact of rate cuts and credit easing has started to diminish. 

Private consumption surged a strong 6.3% and government consumption rose 5.0% in 4Q15, thanks to the effects of fiscal stimulus measures including a temporary cut in consumption tax, launching of nationwide discount sales events and implementation of a supplementary budget. Exports of goods and services registered a positive rise of 8.8% in 4Q15, suggesting that the weakness in monthly trade figures may have been exaggerated by the price factors.

The 2.3% growth in 4Q15 came after a strong rebound in 3Q15 when the economy recovered from the MERS. Adjusted by the swings caused by MERS, GDP growth registered 3.0% on average in the four quarters in 2015. This is in line with the average levels seen since 2011, a new normal growth rate reflecting a weaker global environment. It is also close to the Bank of Korea's estimate of potential growth for the 2015-2018 period (3- 3.2%). 

Currently the BOK forecasts 3.0% growth for 2016. Deflation/disinflation shouldn't be a big worry under this scenario as the output gap will only be slightly negative. 

"Unless growth misses official forecast by a wide margin, we don't see sufficient reasons for the BOK to cut rates this year", notes DBS Group Research.