South Korea’s Economy Rebounds Slightly in Q2 Amid Export and Demand Recovery

South Korea's economy likely returned to growth in the second quarter, driven by improved exports and a gradual recovery in domestic demand, according to a Reuters poll of economists. After contracting 0.2% in Q1 due to weak consumption and sluggish trade, GDP is projected to have grown 0.5% from April to June, aligning with the Bank of Korea’s (BOK) May forecast.

Year-on-year, GDP likely rose 0.4% in Q2 following flat growth in the first quarter, based on estimates from 23 economists surveyed between July 15-21. ING economist Min Joo Kang noted that consumption is showing early signs of recovery, with more substantial improvement expected in Q3 as government-issued spending vouchers take effect.

To counter slowing demand and looming U.S. tariffs, the government approved a 13.8 trillion won ($9.9 billion) supplementary budget in May, followed by a 31.8 trillion won stimulus in July aimed at boosting local spending.

Exports, a key growth driver, climbed 4.3% in June after declining in May, buoyed by strong global demand for semiconductors, vessels, and pharmaceuticals. However, shipments to the U.S. and China fell for a third and second consecutive month, respectively. Construction activity continued to weigh on growth.

South Korea is currently negotiating with Washington to avoid a 25% tariff on its exports, with a deal deadline set for August 1. Industry Minister Kim Jung-kwan described talks as being in a "critical phase," though uncertainty remains.

Meanwhile, the BOK held interest rates steady this month, with many board members signaling the likelihood of a rate cut within the next quarter due to persistent economic risks. Economists have also cut their 2025 growth outlook to 0.9%, aligning with the BOK’s revised projection of 0.8%.