South Korea's 3% growth is not too bad

Jan 28, 2016

South Korea's 4Q15 GDP is due next week. The growth is expected to decelerate to 2.0% (QoQ saar), down from 5.3% in 3Q15. The fall in exports and investment should have been the main drag, a reflective of the headwinds from China's slowdown and global trade weakness. Positive growth contributions should primarily come from consumption and public spending, thanks to the government's stimulus measures including a temporary cut in consumption tax for automobiles and household equipments in Oct-Dec15.

Stripping out the volatility caused by the MERS and looking at the averaged growth in the past four quarters, the economy expanded about 3.0% in 2015, a steady pace compared to the average of 2.7% in 2014 and 3.4% in 2013. The 3% rate is close to the BOK's estimate of potential growth in Korea (3-3.2%). It is not too bad by regional standards as well growth in Singapore, Hong Kong and Taiwan has all fallen to the 1-2% level last year. A slowdown in 4Q15 GDP is unlikely to trigger monetary easing from the BOK.

"We believe that the BOK has fully taken into account the 4Q15 weakness during the quarterly economic review conducted at the 14Jan meeting. Unless growth stays significantly and persistently below the 3% mark in the coming quarters, resulting in a widening of the negative output gap, the BOK is likely to keep the current policy unchanged", says DBS Group Research.

Source: EconoTimes