SEOUL, July 24 (Reuters) – South Korea’s economy expanded at its quickest rate in over a year during the second quarter, exceeding market forecasts, supported by increased consumer activity and a rise in technology-driven exports.
The positive economic figures may provide the Bank of Korea with greater flexibility in its monetary policy, analysts noted, after it maintained interest rates this month but hinted at potential reductions within the next three months due to uncertainties surrounding U.S. tariffs.
“The BOK will certainly revise its economic projections upward next month, allowing more time to evaluate financial stability indicators, which reduces the likelihood of an August rate cut,” stated Cho Yong-gu, an economist at Shinyoung Securities.
Gross domestic product increased by a seasonally adjusted 0.6% in the April-June period compared to a 0.2% contraction in the previous quarter, according to preliminary central bank data released on Thursday.
This exceeded the median forecast of a 0.5% rise in a Reuters survey and marked the highest quarterly growth since the beginning of 2024.
The recovery follows President Lee Jae Myung’s assumption of office in June after an unexpected presidential election, where he prioritized economic revival. He introduced a supplementary budget, including a consumer voucher initiative, to address trade challenges and sluggish consumption.
South Korea held an unplanned presidential election on June 3, after the constitutional court in early April upheld former President Yoon Suk Yeol’s impeachment over his failed martial law order, ending six months of political uncertainty.
“The resurgence in consumer spending was the standout feature,” said Lee Jeong-hoon, an economist at Eugene Investment Securities. He anticipates stronger momentum in the second half, potentially pushing annual growth beyond the central bank’s May projection of 0.8%.
“Although exports may decline, the impact won’t be severe if trade negotiations yield results similar to those with Japan,” Lee added.
In the second quarter, private consumption rose by 0.5% due to improved consumer sentiment and a stock market rally, while construction and facility investments each fell by 1.5%, according to the Bank of Korea.
Exports surged by 4.2%, primarily driven by semiconductors, following a 0.6% decline in the previous quarter amid uncertainty regarding U.S. tariffs. This marked the strongest quarterly performance since the third quarter of 2020.
“In the second quarter, the impact of tariffs was minimal as semiconductor exports remained strong and front-loading increased ahead of implementation,” a Bank of Korea official stated at a press conference, noting that tariffs would begin to affect the third quarter.
U.S. President Donald Trump’s 25% “reciprocal” tariffs on the trade-dependent economy, introduced in early April, are currently suspended until August 1 for trade negotiations, while U.S.-bound shipments in sectors such as automobiles and steel have faced high product-specific tariffs.
On an annual basis, Asia’s fourth-largest economy grew by 0.5% in the second quarter, compared to no growth in the first quarter and a 0.4% expansion anticipated by economists.
Reporting by Jihoon Lee and Cynthia Kim; Editing by Jacqueline Wong
— News Original —
South Korea posts fastest economic growth since early 2024
SEOUL, July 24 (Reuters) – South Korea ‘s economy grew at the fastest pace in more than a year in the second quarter, surpassing market expectations, buoyed by rebounding consumer spending and a surge in exports driven by demand for technology.
The upbeat growth data could give the Bank of Korea more policy space, economists said, after it left interest rates unchanged this month but signalled the possibility of a cut in the next three months due to uncertainty from U.S. tariffs.
Sign up here.
“The BOK will have to raise its economic forecast for sure next month and it will provide more time to assess data on the financial stability front, which lowers the possibility of an August rate cut,” said Cho Yong-gu, an economist at Shinyoung Securities.
Gross domestic product expanded a seasonally adjusted 0.6% in the April-June period from the prior quarter when it contracted 0.2%, advanced central bank estimates showed on Thursday.
It was stronger than the median 0.5% increase forecast in a Reuters poll and the fastest quarterly growth since the first quarter of 2024.
The rebound comes as President Lee Jae Myung, who took office in June after a snap presidential election, made economic recovery a top priority. He introduced a supplementary budget, including a consumer voucher programme, to counter trade challenges and tepid consumption.
South Korea held a snap presidential election on June 3, after the constitutional court in early April upheld former President Yoon Suk Yeol ‘s impeachment over his failed martial law order, ending six months of political uncertainty.
“The rebound in consumer spending was the brightest spot,” Lee Jeong-hoon, an economist at Eugene Investment Securities, said. He expects stronger momentum in the second half, bringing annual growth above the central bank ‘s May forecast of 0.8%.
“Although exports will weaken, it won ‘t be that severe, if the outcome of the trade negotiations is similar to that of Japan,” Lee said.
In the second quarter, private consumption rose 0.5% over the quarter on improving consumer sentiment and a stock market rally, while construction and facility investments each fell 1.5%, according to the Bank of Korea.
Exports jumped 4.2%, led by semiconductors, after falling 0.6% in the previous quarter amid U.S. tariff uncertainty. It was the strongest quarterly performance since the third quarter of 2020.
“In the second quarter, the impact of tariffs was limited as semiconductor exports remained robust and front-loading increased ahead of the imposition,” a Bank of Korea official told a press conference, adding that tariffs would start to weigh in the third quarter.
U.S. President Donald Trump ‘s 25% “reciprocal” tariffs against the trade-reliant economy introduced in early April are currently paused until August 1 for trade negotiations, while U.S.-bound shipments in industries such as autos and steel have been hit by high product-specific tariffs.
On an annual basis, Asia ‘s fourth-largest economy grew 0.5% in the second quarter, compared with no growth in the first quarter and a 0.4% expansion expected by economists.
Reporting by Jihoon Lee and Cynthia Kim; Editing by Jacqueline Wong