South Korean GDP likely grew slightly below 2 pct in 2019, modest rebound expected in quarters ahead - Scotiabank

The South Korean economy continues to be dragged by the challenges of external sector, noted Scotiabank in a research report. The country’s exports have been below year-earlier levels since the end of 2018 due to softer global demand and the supply chain ripple effects from the U.S.-China trade conflict. Furthermore, the global electronics sector downturn continues, reflecting weaker Chinese demand and oversupply conditions in the semiconductor sector, which is adjusting to a longer replacement cycle of smartphones.

Challenges of external sector have spilled over to domestic demand, as reflected by slower momentum in household spending and fixed investment. Nevertheless, consumer and business sentiment indicators have bottomed out, indicating towards a gradual rebound in the coming months.

South Korean state budget for 2020 continues to be expansionary. Public outlays are expected to rise 9.1 percent year-on-year in 2020, with focus on such areas and R&D, industrial and export sector support as well as health, welfare, and employment. The government intends to frontload the spending in early 2020 to maximize the stimulative effect on the economy. The growth-supportive fiscal policies might complement the Bank of Korea’s monetary easing attempts, aiding with the nation’s economic recovery.

“We estimate that South Korea’s real GDP grew by slightly less than 2 percent in 2019. A modest recovery is in sight over the coming quarters with output gains expected to average 2⅓ percent y/y in 2020–21”, added Scotiabank.