Korean economy accelerates but external headwinds threaten growth

Outturn makes rate cut less likely.

BBVA reports that South Korea Q1 GDP growth accelerated to 0.9 q/q s.a (BBVA: 0.4%; consensus: 0.7) from 0.3 in the final quarter of last year. In year-over-year terms, the outturn came to 1.5%, the same as last quarter.

"The better-than-expected outturn was due to a pickup in public spending, and strong investment (2.9% q/q, s.a.) and exports (3.2% q/q, s.a.), which returned to positive growth from declines in Q4 2012 (-1.6% and -1.1%, respectively)," BBVA said.

"On a discouraging note, however, private consumption declined by -0.3% q/q in Q1, compared to a 0.8% q/q growth of Q4 2012. Looking ahead, we expect that external headwinds will continue to weigh on South Korea’s external sector, while domestic demand will be supported by the recent fiscal stimulus measures. While we have anticipated another rate cut by the Bank of Korea in the coming months, the Q1 GDP outturn may now make this less likely (the BoK has been on hold at 2.75% since November). We expect the Korean economy to grow by 2.7% in 2013, up from 2.0% in 2012," it said further.