South Korean economic growth acclerated in the June quarter

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South Korea’s economy — the 12th largest in the world and third-largest in Asia behind China and Japan — gathered steam in the second quarter of 2016, expanding by 0.7% in seasonally-adjusted terms, according to the advanced GDP report released by the Bank of Korea early Tuesday.

The increase, in line with expectations and ahead of the 0.5% expansion seen in the first three months of the year, saw the year-on-year GDP growth rate accelerate to 3.2%.

This was higher than the 2.8% pace seen in Q1 and marked the fastest year-on-year growth seen since the September quarter of 2014. It was also ahead of forecasts for an expansion of 2.9%.

According to the Bank of Korea, private consumption rose by 0.9% in the second quarter, rebounding from a 0.2% contraction seen previously, while capital investment expanded by 2.9% following a 7.4% drop in Q1.

Despite the quarterly increase in volume terms, real gross domestic income (GDI) fell by 0.4% over the same period.

The Bank of Korea will release preliminary and final GDP figures for the quarter — containing more comprehensive analysis — in the months ahead.

The table below, supplied by the Bank of Korea, breaks the Q2 GDP report down into seasonally-adjusted chain-volume terms.

Despite the acceleration seen during the second quarter, not everyone believes that trend will last.

“Growth at 0.7% comes as a relief but construction will probably slow from now on,” Park Jung-woo, an economist at Korea Investment and Securities, told Reuters. “GDP growth in annual terms is likely to ease to the 2-percent range in the third and fourth quarters.”

According to Reuters, the South Korean government will submit a $US9.7 billion supplementary budget to parliament later on Tuesday, which will focus on creating 68,000 new jobs to make up for severe job cuts as the struggling shipping and building industries are overhauled.

“The government’s extra budget will only partially affect this year’s growth and this may lead to more demand for another rate cut,” said Park.

In June the Bank of Korea stunned financial markets by cutting interest rates to a record-low level of 1.25%, with financial markets pricing in the likelihood that a further rate cut will be delivered by the end of 2016.

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