The South Korean Economy Shrinks More Than Expected

southkoreaSouth Korea’s economy contracted 0.4 percent, falling more than the 0.3 percent the analysts expected, according to the South Korean central bank data which published its data earlier on Tuesday. This is the largest growth drop since the 2008 recession.

According to the bank data, the economy was dragged down mostly by a diminishing global demand for electronics and the uncertainty associated with Trump's trade war against China, causing a 3.3 percent drop in manufacturing (mostly computers, electronics, and optical equipment) and a 3.2 percent drop in exports, which comprises about 50 percent of the South Korean gross domestic product (GDP).

May marks the sixth consecutive month that South Korean exports fell, and the seventh consecutive month its shipments to China declined.

The central bank explained that exports and construction investment shrank more than expected in April (total output declined by 1 percent), while public spending was bigger than what was previously estimated. The service industry rose by 0.8 percent, helped by the 0.1 percent growth in private consumption.

On a yearly basis, the South Korean economy grew 1.7 percent against the 1.8 percent estimated.

Concerns are mounting that a slip in the country's exports may continue longer than expected since South Korea's top trading partners are amid a trade war. However, some consider that those drops in shipments are cyclical.

The bank also provided the core CPI figure (excluding volatile food and energy prices), which rose 0.6 percent, slowing down from the 0.7 percent in April. This is the weakest gain since December 1999.

The Bank of Korea decided to leave the cash rate unchanged last Friday, however, the split vote in the decision was interpreted by investors as a sign of a future rate cut. The BOK is expected to review its monetary policy and to revise its growth forecast on July 18.

Sara Patterson
Sara Patterson has a Master’s Degree in political science and enjoys analyzing both current events and the international markets to get a fuller perspective of the currency market. Before turning to financial writing, she taught English writing skills to high-school age students. Sara’s work has been published on various financial and Forex blogs.