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Gov't spending offsets sagging investment, exports
By Lee Kyung-min
The Korean economy grew by 1.1 percent in the second quarter from a quarter ago, a dramatic turnaround from the 0.4 percent contraction in the first quarter, the Bank of Korea said Thursday.
However, the figure should not be seen as an indication of a meaningful rebound of Asia's fourth-largest economy as the growth has been mostly led by an increase in government spending amid a slump in corporate investments and exports.
Bank of Korea (BOK) advance data showed that the second-quarter growth of the gross domestic product (GDP) was the fastest in seven quarters since the third quarter of 2017 when the rate was 1.5 percent.
Government spending saw a 2.5 percent increase from a quarter earlier due largely to a jump in healthcare spending, while private consumption grew 0.7 percent from the previous quarter.
"The second-quarter growth came as government spending offset weak exports and private investment," a BOK official said at a press briefing.
The central bank estimated that government spending contributed 1.3 percentage points to economic growth in the second quarter, a sharp turnaround from a negative 0.6 percentage points three months earlier.
During the same period, private sector's contribution came to minus 0.2 percentage points as companies reduced investment amid lingering uncertainties.
"Private consumption showed a sign of recovery, but not enough to offset the weaknesses in other areas," the BOK official said.
The central bank estimates that the economy will have to grow at least 0.8 percent per quarter in the latter half of 2019 to meet the BOK annual growth forecast of 2.2 percent.
Economic recovery will hinge on whether the private sector gains vitality in the coming quarters, the BOK added.
"The country will have to wait for the growth momentum in the third and fourth quarters, set to be determined by whether the corporate investment will pick up," the official said.
However, the much-needed momentum will be hard to come by, given the recent trade dispute between Korea and Japan over the latter's export restrictions on key materials needed for the former to produce semiconductors, according to Sung Tae-yoon, an economist at Yonsei University.
Korea's economic growth has largely been led by the chip industry. Japan accounts for 90 percent of the global supply of the key materials while Korea accounts for about 60 percent of global chip production.
"Korea's export-reliant economy has long suffered due to the U.S.-China trade dispute, and the recent row involving Japan is adding to the already prevalent worries," Sung said.
"More efforts will be needed for the recent key rate cut to 1.5 percent to have the desired effect, and lowering the rate can be a matter of when, not if."
BOK Governor Lee Ju-yeol told the National Assembly July 24 that the central bank data have yet to reflect the possible fallout from the dispute with Japan.
The remarks are fueling market expectations that the key rate will be cut by another 25 basis points in the upcoming rate-setting meetings.
The Korean economy grew 2.1 percent in the second quarter on a year-on-year basis, the highest growth since the last quarter of 2018, according to the BOK.
Despite the rebound in GDP growth, the real gross domestic income (GDI) decreased 0.6 percent between April and June from the quarter before.
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