South Korea posts fastest economic growth since early 2024 as Trump tariffs loom
South Korea's exports jumped the most in nearly five years, led by semiconductors.
- 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 (BOK) 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 US 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 per cent in the April-June period from the prior quarter when it contracted 0.2 per cent, advanced estimates showed on July 24.
It was stronger than the median 0.5 per cent 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 per cent.
'Although exports will weaken, it won't be that severe, if the outcome of the trade negotiations is similar to that of Japan,' Mr Lee said.
In the second quarter, private consumption rose 0.5 per cent over the quarter on improving consumer sentiment and a stock market rally, while construction and facility investments each fell 1.5 per cent.
Exports jumped 4.2 per cent, led by semiconductors, after falling 0.6 per cent in the previous quarter amid US 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 BOK official told a press conference, adding that tariffs would start to weigh in the third quarter.
US President Donald Trump's 25 per cent 'reciprocal' tariffs against the trade-reliant economy introduced in early April are currently paused until Aug 1 for trade negotiations, while US-bound shipments in industries such as autos and steel have been hit by high product-specific tariffs.
Year on year, Asia's fourth-largest economy grew 0.5 per cent in the second quarter, compared with no growth in the first quarter and a 0.4 per cent expansion expected by economists. REUTERS
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