South Korea’s economy grew 0.6% quarter-on-quarter in the second quarter, according to advance estimates from the Bank of Korea, beating Reuters’ poll forecast of 0.5% and reversing a 0.2% contraction in Q1, thus avoiding a technical recession.
On a year-over-year basis, GDP rose 0.5%, up from 0% in the first quarter and exceeding the 0.4% growth expected by economists.
Exports of goods and services surged 4.2% quarter-on-quarter, driven by higher shipments of semiconductors, petroleum products and chemicals. “Net exports were the principal driver of growth,” said Louise Loo, Head of Asia Economics at Oxford Economics. She noted export volumes rose at the fastest pace since Q3 2020 as firms rushed shipments ahead of possible U.S. tariff changes.
Capital Economics’ Shivaan Tandon warned that outward-facing sectors could face headwinds as global trade slows. While AI-related hardware demand may support semiconductor exports, other sectors are likely to come under pressure.
South Korea is negotiating a trade deal with the U.S.; without it, a 25% tariff will apply from August 1. Talks with U.S. Treasury Secretary Scott Bessent were cancelled due to scheduling conflicts but are expected to resume soon. U.S. is South Korea’s second-largest export market, and exports made up 44% of South Korea’s GDP in 2023. Yonhap reported Seoul has ruled out using beef and rice import concessions in tariff talks.
Domestically, total consumption grew 0.7% quarter-on-quarter, reversing a 0.1% contraction in Q1. Government spending rose 1.2% due to higher healthcare benefits, while private spending grew 0.5% on vehicles, recreation and sports. However, construction and equipment investment slowed, offsetting some gains.
Oxford Economics projects South Korea’s GDP will grow just 0.8% in 2025, the slowest pace since 2020, which could push the Bank of Korea to consider rate cuts. On July 10, the BOK held rates steady, prioritizing financial stability despite forecasting slower growth. Inflation stood at 2.2% in June, slightly above the 2% target.
