By Rahul Trivedi
BENGALURU (Reuters) -South Korea’s economy likely returned to growth last quarter, supported by a modest rebound in exports and a gradual recovery in domestic demand, a Reuters poll of economists found.
After contracting 0.2% in the January-March period due to sluggish consumption and weak exports, Asia’s fourth-largest economy grew a seasonally adjusted 0.5% in the April-June quarter, according to the median forecast of 22 economists.
If realised, growth would align with the Bank of Korea’s projection made in May.
On a year-on-year basis, gross domestic product (GDP) was forecast to have expanded 0.4% in the second quarter, following zero growth in the first three months of the year, based on the median estimate from 23 economists polled July 15-21.
“South Korea’s second-quarter GDP is expected to rebound modestly,” said Min Joo Kang, economist at ING. “Consumption showed signs of recovery, but a more meaningful improvement is likely in the third quarter, once the government’s consumption voucher programme takes effect.
To cushion the economy against weak domestic demand and the potential fallout from U.S. tariffs, the government approved a supplementary budget of 13.8 trillion won ($9.9 billion) in May, followed by a larger 31.8 trillion won package in early July that includes giving all local citizens spending vouchers.
Exports rose 4.3% in June after a 1.3% decline in May, driven by strong global demand for semiconductors. However, exports to the United States fell for a third consecutive month, slipping 0.5%, while shipments to China dropped 2.7%, marking the second straight monthly decline.
“Although exports have been volatile they posted a gain, supported by strong orders for semiconductors, vessels and pharmaceutical goods,” Kang added. “Construction, however, likely remained a drag on overall growth.”
South Korea, currently in trade negotiations with Washington, risks facing a 25% tariff on its exports to the United States if no deal is reached before the August 1 deadline.
Industry Minister Kim Jung-kwan said on Monday talks were in a “critical phase” with a wide range of outcomes still possible.
“The South Korean government is working very hard to secure a deal, but whether the deal comes before August 1 is highly uncertain,” said Stephen Lee, chief economist at Meritz Securities.
“If the two countries are willing to link everything to the deal – from reducing nontariff barriers, buying more U.S. produced goods, our involvement in Alaska projects and defense spending – the negotiations would need more time.”
Earlier this month the Bank of Korea held interest rates steady, but a majority of board members signaled the likelihood of a rate cut within the next three months, citing ‘significant’ economic uncertainty stemming from potential U.S. tariffs.
A separate Reuters poll showed economists have lowered their 2025 growth forecast to 0.9%, down from 1.3% projected in April, bringing it in line with the BOK’s latest estimate of 0.8%.
($1 = 1,387.8 won)
(Reporting by Rahul Trivedi; Polling by Vijayalakshmi Srinivasan and Devayani Sathyan in BENGALURU and Jihoon Lee in SEOUL, Editing by William Maclean)
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