South Korea posts fastest economic growth since early 2024
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.
"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.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
14 minutes ago
- Reuters
Fed policymakers signal rising angst about cooling economy
WASHINGTON, Aug 6 (Reuters) - Less than a week after deciding against an interest-rate cut, some Federal Reserve policymakers are signaling rising angst about a cooling U.S. labor market and a slowing economy, even as they continue to express uncertainty about the outlook for inflation, which remains stuck above the Fed's 2% goal. Minneapolis Fed President Neel Kashkari on Wednesday said that for him, it all adds up to a case for interest rate cuts in coming months. "The economy is slowing, and that means in the near term it may become appropriate to start adjusting," Kashkari said on CNBC's Squawk Box, adding that two quarter-percentage-point rate cuts by the end of the year "seems reasonable to me." Recent data "suggests the real underlying economy is slowing. I've got confidence that that is happening," Kashkari said. "How long can we wait until the tariff effects become clear? That's just weighing on me right now." Speaking early this week to Reuters, San Francisco Fed President Mary Daly said it could take six months or more to learn whether the Trump administration's tariffs will push up inflation persistently. Meanwhile, while she was "willing" to leave rates on hold last week, the slowing labor market makes her increasingly uncomfortable about making that same decision in upcoming meetings, she said. Like Kashkari, she views two rate cuts this year as probably appropriate, though given the state of the economy she said that doing more than two rate cuts is more likely than doing fewer. Neither Kashkari nor Daly has a vote on interest rate policy this year, but their arguments are similar to those made by two Fed governors who dissented at the Fed's decision last week to hold the policy rate steady while awaiting more clarity on how rising import tariffs will feed through to consumer prices. Two days after the meeting, the Labor Department released a monthly jobs report that showed weaker-than-expected job growth in July and big downward revisions to payroll estimates for May and June. "This is concerning," Fed Governor Lisa Cook said of the report, noting that revisions typically occur at inflection points in the economy. Cook did not say how the fresh labor market data has influenced her view on appropriate monetary policy. She, like Kashkari and Daly, said she is also focused on whether any increase in prices will be one time or more persistent. "It is critical that we try to understand better which one this could be, but it's limited and the information we have is limited and the way we can incorporate it into our models is limited," she said. President Donald Trump, who has pushed for sharply lower interest rates, has said he will nominate a new member to the Fed's Board shortly, following Fed Governor Adriana Kugler's surprise resignation last week. It's unclear if the new governor would function as a Fed chief-in-waiting until Jerome Powell completes his term as Fed chair on May 15, or would merely serve out the rest of Kugler's term, which runs to the end of January.
Telegraph
2 hours ago
- Telegraph
Trump taking on Modi risks worst of both worlds
Secondary tariffs on countries buying Russian oil were meant to be the bunker buster in Washington's sanctions armoury, a weapon so devastating it would cripple Moscow's economy. Yet by appearing to punish India alone, Donald Trump risks squandering its impact. He may end up with the worst of all worlds: dropping a bomb too small to do significant damage to Russia while alienating a vital ally and counterweight to China. After months of resolutely refusing to punish Russia, the US president has changed tack. Convinced that Vladimir Putin has no interest in ending the war in Ukraine, Mr Trump has concluded that targeting Russia's energy sector – which generates a third of government revenue – is the key pressure point. 'If energy goes down, Putin is going to stop killing people,' he said this week. India has undeniably helped prop up the Kremlin's war machine, buying £42bn of Russian oil last year. But other nations have also helped fund Putin's invasion. China buys more than India, while Turkey, Brazil, the United Arab Emirates and even some European Union states are significant consumers. It is possible that Mr Trump may widen his net in the coming days. He has given Putin until Friday to agree to a ceasefire or face consequences. Until now, Russia has faced a 10 per cent tariff, the lowest level Mr Trump applies. That figure is almost certain to rise, but with bilateral trade at £3.9bn last year, such a move will barely trouble the Kremlin. More direct sanctions on Russia's banks or its shadow tanker fleet could follow, but these too seem unlikely to force a change of course. Secondary tariffs on countries buying Russian oil could, in theory, bite harder. Yet, by singling out India with a 25 per cent penalty, the weapon has been fired half-cocked. Analysts speculate that Mr Trump may extend the measures to other countries. If that is his intent, it is curious he would shame India rather than wait 48 hours to announce a broader policy. The strategy risks misfiring. Narendra Modi, India's prime minister, has endured repeated humiliations from a man he once called a friend. Yet in recent months Mr Trump has imposed higher tariffs on India than on most of its Asian competitors and caused anguish by courting Pakistan, which is closely aligned with China. With public anger in India growing over Washington's perceived high-handedness, Mr Modi would find it politically tricky to halt all Russian oil purchases, even if he wished to. Given the importance of the US market for Indian exports, he may have to find a fudge. Any concession, however, will come at a cost. Analysts say India is now likely to edge closer to China and Russia, weakening one of Washington's most valuable relationships in Asia. Even if India reduces imports, it is unclear whether losing a single buyer – even one as important as Delhi – will seriously dent Russia's war economy. A policy that leaves Putin undeterred while estranging India is hardly a triumph of statecraft – though final judgment must wait until Mr Trump reveals the rest of his plan.
Reuters
2 hours ago
- Reuters
Kashkari: Fed needs to respond to slowing economy, two cuts this year would be reasonable
WASHINGTON, Aug 6 (Reuters) - The U.S. Federal Reserve may need to cut interest rates in the near term in response to a slowing U.S. economy, even though it remains unclear whether tariffs will continue to push inflation higher, Minneapolis Fed President Neel Kashkari said on Wednesday. "The economy is slowing, and that means in the near term it may become appropriate to start adjusting," Kashkari said in an interview on CNBC's Squawk Box, adding that two quarter-percentage-point rate cuts by the end of the year "seems reasonable to me." Kashkari said concerns about rising inflation remain valid, but that it will take time to know whether that poses a problem for the Fed reaching its 2% inflation target or not. Meanwhile a weak jobs report and downward revisions to prior months' employment data add to a developing set of statistics that show the economy slowing to a degree the Fed cannot ignore, Kashkari said. Recent data "suggests the real underlying economy is slowing. I've got confidence that that is happening," Kashkari said. "How long can we wait until the tariff effects become clear? That's just weighing on me right now." Kashkari does not have a vote on interest rate policy this year, but his arguments are similar to those voiced by two Fed governors who dissented at the Fed's decision last week to hold the policy rate steady while awaiting more clarity on how rising import tariffs will feed through to consumer prices. A slowdown in job creation and rise in the unemployment rate in July have begun shifting the narrative, however, to put more focus on risks to the Fed's other goal of maintaining maximum employment.
