South Korea's economy picked up speed in Q2, government's stimulus measures to keep the growth engines running

South Korea’s gross domestic product (GDP) expanded a seasonally adjusted 0.7 percent in Q2 from the previous quarter after a revised 0. 5 percent gain in Q1 2016, preliminary data from the Bank of Korea showed on Tuesday. The latest figure beats a median forecast for a 0.6 percent expansion in the April-June period. Stronger capital investment and domestic consumption were the main drives behind the robust economic growth in Q2.

On a year-on-year basis, the economy grew 3.2 percent in Q2, compared with 2.8 percent in Q1. The improvement is broad based, private consumption grew 0.9 percent in Q2, up from -0.2 percent in the previous quarter; investment expanded by 2.3 percent in Q2, up strongly from -0.9 percent in Q1; exports and imports grew 0.9 percent and 1.9 percent in Q2 respectively, compared with -1.1 percent and -3.1 percent in Q1.

Government consumption however, slowed somewhat to 0.2 percent q/q sa in Q2 from Q1’s 1.3 percent, this is largely because the government frontloaded the budget at the beginning of the year to counter the economic slowdown – in general, the government spending in H1 is still solid.

The South Korean government last week announced an 11 trillion won ($9.7 billion) supplement to its government spending as part of a comprehensive fiscal stimulus package valued at about 28 trillion won to support the lackluster economy. The extra budget plan is being sent to the Parliament for approval. Details of 11 trillion supplementary budget will be outlined this Friday, which is likely to boost growth by 0.1 to 0.2 percent point according to the central bank’s estimation. Currently, the Bank of Korea forecasts the economy to grow 2.7 percent for the whole of 2016, whereas the Korean government estimates GDP to grow 2.8 percent.

South Korean won appreciated on robust GDP data, was 0.4 percent down on the day against the US dollar. USD/KRW was trading at 1134.85 at 11:00 GMT. KRW is one of the best performers in Asia, gaining 2.77 percent versus USD year-to-date.