BENGALURU, July 22 (Reuters) – Recent economic indicators suggest South Korea’s economy likely resumed expansion during the second quarter, driven by a moderate upturn in external trade and a slow strengthening of internal demand, according to a Reuters survey of economists.
Following a contraction of 0.2% during the first quarter due to weak consumer activity and reduced export volumes, Asia’s fourth-largest economy is projected to have grown by 0.5% on a seasonally adjusted basis during April to June, based on forecasts from 22 economists.
The year-on-year GDP growth is estimated at 0.4% for the second quarter, compared to no growth in the first three months of the year, according to median estimates from 23 economists surveyed between July 15 and 21.
“South Korea’s GDP performance in Q2 is anticipated to show a moderate recovery,” noted Min Joo Kang, an economist at ING. “While consumer spending has started to improve, a more substantial rebound may occur in the third quarter once the government’s voucher initiative becomes effective.”
To counteract weak internal demand and potential disruptions from U.S. trade policies, the government implemented a supplementary budget of 13.8 trillion won ($9.9 billion) in May, followed by a larger 31.8 trillion won package in early July that includes spending vouchers for all local citizens.
Exports increased by 4.3% in June after a 1.3% drop in May, primarily driven by strong global demand for semiconductors. However, shipments to the United States declined for the third consecutive month, falling by 0.5%, while exports to China decreased by 2.7%, marking the second consecutive monthly decline.
“Despite fluctuations in export volumes, there was an overall increase, supported by strong orders for semiconductors, ships, and pharmaceutical products,” Kang explained. “The construction sector, however, likely continued to weigh on overall economic expansion.”
South Korea, currently engaged in trade discussions with Washington, faces the possibility of a 25% tariff on its exports to the United States if an agreement isn’t reached before the August 1 deadline.
Industry Minister Kim Jung-kwan stated on Monday that negotiations were in a “critical phase” with a range of potential outcomes still possible.
“The South Korean government is making significant efforts to reach an agreement, but whether a deal will be finalized before August 1 remains uncertain,” said Stephen Lee, chief economist at Meritz Securities.
“If both countries aim to include various elements in the agreement – such as reducing non-tariff barriers, increasing purchases of U.S. goods, involvement in Alaskan projects, and defense spending – the negotiations may require additional time.”
Earlier this month, the Bank of Korea kept interest rates unchanged, but most board members indicated a potential rate cut within the next three months, citing ‘significant’ economic uncertainty arising from possible U.S. tariffs.
A separate Reuters survey revealed that economists have revised their 2025 growth forecast downward to 0.9%, compared to the previous estimate of 1.3% in April, bringing it closer to the Bank of Korea’s latest projection of 0.8%.
($1 = 1,387.8 won)
Reporting by Rahul Trivedi; Polling by Vijayalakshmi Srinivasan and Devayani Sathyan in BENGALURU and Jihoon Lee in SEOUL, Editing by William Maclean
— News Original —
South Korea economy likely returned to growth in Q2: Reuters poll
BENGALURU, July 22 (Reuters) – South Korea ‘s economy likely returned to growth last quarter, supported by a modest rebound in exports and a gradual recovery in domestic demand, a Reuters poll of economists found.
After contracting 0.2% in the January-March period due to sluggish consumption and weak exports, Asia ‘s fourth-largest economy grew a seasonally adjusted 0.5% in the April-June quarter, according to the median forecast of 22 economists.
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On a year-on-year basis, gross domestic product (GDP) was forecast to have expanded 0.4% in the second quarter, following zero growth in the first three months of the year, based on the median estimate from 23 economists polled July 15-21.
“South Korea ‘s second-quarter GDP is expected to rebound modestly,” said Min Joo Kang, economist at ING. “Consumption showed signs of recovery, but a more meaningful improvement is likely in the third quarter, once the government ‘s consumption voucher programme takes effect.
To cushion the economy against weak domestic demand and the potential fallout from U.S. tariffs, the government approved a supplementary budget of 13.8 trillion won ($9.9 billion) in May, followed by a larger 31.8 trillion won package in early July that includes giving all local citizens spending vouchers.
Exports rose 4.3% in June after a 1.3% decline in May, driven by strong global demand for semiconductors. However, exports to the United States fell for a third consecutive month, slipping 0.5%, while shipments to China dropped 2.7%, marking the second straight monthly decline.
“Although exports have been volatile they posted a gain, supported by strong orders for semiconductors, vessels and pharmaceutical goods,” Kang added. “Construction, however, likely remained a drag on overall growth.”
South Korea, currently in trade negotiations with Washington, risks facing a 25% tariff on its exports to the United States if no deal is reached before the August 1 deadline.
Industry Minister Kim Jung-kwan said on Monday talks were in a “critical phase” with a wide range of outcomes still possible.
“The South Korean government is working very hard to secure a deal, but whether the deal comes before August 1 is highly uncertain,” said Stephen Lee, chief economist at Meritz Securities.
“If the two countries are willing to link everything to the deal – from reducing nontariff barriers, buying more U.S. produced goods, our involvement in Alaska projects and defense spending – the negotiations would need more time.”
Earlier this month the Bank of Korea held interest rates steady, but a majority of board members signaled the likelihood of a rate cut within the next three months, citing ‘significant ‘ economic uncertainty stemming from potential U.S. tariffs.
A separate Reuters poll showed economists have lowered their 2025 growth forecast to 0.9%, down from 1.3% projected in April, bringing it in line with the BOK ‘s latest estimate of 0.8%.
($1 = 1,387.8 won)
Reporting by Rahul Trivedi; Polling by Vijayalakshmi Srinivasan and Devayani Sathyan in BENGALURU and Jihoon Lee in SEOUL, Editing by William Maclean