Here's why analysts expect depressing economic numbers for Korea

GDP growth is foreseen to just hit 0.2%.

According to DBS, the GDP data due this week will show that the economy has deteriorated further in 3Q. Consensus expects a paltry growth of 0.2% (QoQ sa).

Here's more from DBS:

The risks to the consensus forecast should be on the downside. Industrial production fell sharply in Jul-Aug, as a result of global slowdown and the strikes in Korea’s automobile sector. Services output has also decelerated in Jul-Aug, and construction output contracted.

As automotive production has recouped about 90% of the loss incurred in August (KAMA data), we assume a 2% (MoM) rise in industrial production in September.

We also assume that the services and construction sectors will both return to the long term growth rates in September. Even so, our regression models show that the 3Q GDP will be only about 1.5% YoY, or 0% QoQ sa.

On account of a worse-than-expected 3Q, we have further cut the 2012 GDP estimate to 2.3% (from 2.7%), and tweaked the 2013 forecast to 3.8% (from 3.9%).

That said, we think the near-term economic cycle has bottomed in 3Q. The supply-side recovery in the automobile sector will be reflected in 4Q GDP, helping to arrest a further slide in manufacturing growth.

On the demand side, the latest improvement in China’s GDP growth (QoQ, 3Q) and the rebound in China’s electronics imports offered some hope that Korea’s exports will come out from the bottom in 4Q.

It is needless to say that the Chinese demand is important for Korean exporters – exports to China account for more than 20% of Korea’s total exports. DBS expects a more notable improvement in China’s domestic demand after the leadership transition in Nov12, starting from 1Q13 onwards.