S.Korea's growth momentum to remain weak in 2016

South Korea's Q3 GDP growth beat expectations and rebounded to 1.2% q/q sa from the MERSinduced slump of 0.3% q/q sa in Q2. It also marked the fastest quarterly momentum since June 2010. A stronger acceleration in private consumption that attributes 1.1% q/q sa (Q2: -0.2%; Q1: 0.6%). 

The recovery reflected a temporary consumption tax cut and pent-up tourist and local spending after the recent MERS outbreak, pushing activity higher in commerce, accommodation and transport. An equally strong boost from construction activity, which jumped 4.5% q/q sa in Q3 (Q2: 1.6%; Q1: 7.4%), on residential housing building, mostly in Gyeonggi and Incheon, as well as increased civil engineering projects.

"All in, given the stronger-than-expected Q3 outcome, we fine-tune our full-year 2015 growth forecast, raising it by 10bp, to 2.6% (BoK: 2.7%). We maintain our 2016 growth forecast at 3% (BoK: 3.2%). Despite the better-than-expected growth, we continue to expect underlying growth momentum to remain weak into 2016, and for the stance of monetary policy to remain accommodative well into next year", estimates Barclays. 

Barclays notes two key risks to their expectation of a 25bp policy rate cut at the November meeting.

• 1) whether the BoJ eases further at its policy meeting on 30 October
   
• 2) whether the tone of incoming data on exports and industrial production suggests that the Q3 rebound can be sustained

However, with exports still soft, it is assumed that a much weaker KRW bias may be needed.