Supported by the continued boom in the construction industry and moderate increases in private consumption, the South Korean economy grew at an increased rate this quarter.
The Bank of Korea (BOK) released its Q2 data on Monday and it revealed the GDP swelled by 0.8 percent compared to 0.4 percent at the start of the year. This quarter’s performance has surpassed Bloomberg’s forecasts by 0.3 percent.
The report also showed the economy expanded 3.3 percent compared to the previous fiscal year, with private consumption up 1 percent and construction investment up nearly 3 percent.
Consumption figures were boosted by the surprise extension of temporary tax discounts brought in by the government to spur auto purchases. The on-going construction frenzy has thrived under ultra-low interest rates.
However, the BOK felt the need to slim down its GDP forecast by a small amount to 2.6 percent in response to upcoming reshuffling of management at several key indebted firms, market volatility regarding the Brexit vote and the newly formed anti-corruption law.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented on the news, “The central bank need some time to observe how their stimulus packages are filtering through the economy. This encouraging data will buy them that time. There are likely to be a few heavy factors that might drag on the economy in the near future, but at the moment we can call this an upswing.”
Director for BOK, Kim Young Tai, said several new product releases in the automotive and phone industries combined with the tax break extension gave private spending a much needed boost. He said that “the first 6 months of this year have fallen in line with central bank forecasts.”
The government and central bank announced they have set aside nearly $10 billion designed to act as a safety net should corporate restructuring and a dip in employment negatively affect the economy. The authorities are particularly wary regarding the shipbuilding industry which slumped last year.
The new anti-corruption measures, which will go live this October, might also inhibit economic growth. Yoo Il Ho, South Korean Finance Minister, said the new legislation may hurt some larger businesses and have some negative aftershocks on the wider financial landscape.
The law aims to put an end to gifts that certain citizens holding prominent positions can take. Included are journalists, teachers and politicians.
