South Korea economic growth likely to slow moderately on drag in manufacturing, exports

The economic growth of South Korea is expected to have moderately slowed during the third quarter, largely following drag in the manufacturing and exports sector. Consumption growth also appears to have slowed in Q3.

Growth is expected to slow moderately to 2.4 percent q/q on a seasonally adjusted annual rate (saar) basis, down from 3.2 percent in the previous quarter. In the year-on-year terms, it is estimated that growth will drop to 2.6 percent from 3.3 percent, DBS reported.

Also, the labor strike at Hyundai Motor, the product safety issues with Samsung’s Galaxy Note 7 and the collapse of Hanjin Shipping have caused hindrances in production and shipments. However, in the North Asia region, the manufacturing sectors in China and Taiwan have actually showed some signs of stabilization and recovery, which also suggests that the weakness in Korea is largely due to domestic factors.

In addition, the expiration of a temporary sales tax cut on automobiles, implementation of the anti-corruption law, together with the sluggish labor market, is bound to have weighed on consumer spending. However, construction investment remains the key driver of Q3’s gross domestic product (GDP), owing to expansion in mortgage loans, property sales and prices which have shown desperate signs of recovery.

"We currently maintain the full-year GDP forecasts at 2.8 percent for 2016 and 2.7 percent for 2017, but see the risks as skewed to the downside," DBS commented in its latest research report.