South Korea’s economy grew more than expected in fourth quarter

On Jan 22, 2020

SEOUL – South Korea’s economy expanded at a faster pace than expected in the fourth quarter, supporting optimism that a recovery may be under way for the Asian bellwether of global demand.

Gross domestic product increased 1.2 per cent from the previous quarter, the fastest pace since the third quarter of 2017, a Bank of Korea statement showed on Wednesday (Jan 22). Economists had forecast a 0.7 per cent expansion.

South Korea is pinning its hopes on an export-turnaround as trade tensions thaw between the US and China, its two biggest trading partners. The latest data was positive, with semiconductor shipments gaining in the first 20 days of January for the first time in more than a year.

BOK’s Governor Lee Ju-yeol also struck a more optimistic tone as the board put interest rates on hold last week. Lee said the economy would grow faster this year than in 2019. The BOK forecasts 2.3 per cent growth this year.

An expansionary government budget is another key factor likely to bolster growth this year. The government says it will front-load its 2020 spending in the first half of the year to support a recovery in investment. A supplementary budget approved last August helped counter downside risks in the fourth quarter.

President Moon Jae-in pointed this week to the stock market’s recovery as evidence of rising economic optimism. Moon predicted exports will expand from February. The Kospi index has risen 3 per cent so far in 2020.

Lower construction investment may remain a drag on growth this year. On top of higher property taxes and tighter lending regulations announced in December, Moon recently said he’s willing to take “endless” action to curb rising home prices.

Justin Jimenez, Bloomberg Economics analyst said: “Looking ahead, we forecast GDP growth of 2.3 per cent in 2020, reflecting a gradual recovery in exports and investment. On the policy front, an expansionary fiscal stance will likely take the lead in supporting the economy. Our baseline expectation is for the Bank of Korea to stand pat in the year ahead.”