(Bloomberg) -- The Bank of Korea left second-quarter data mostly unrevised, confirming that the economy shrank and giving policymakers added incentive to shift their focus to supporting growth momentum after inflation slowed in line with projections.
Gross domestic product fell 0.2% from the previous quarter, a result that matched the initial estimate, the central bank said Thursday. From a year earlier, the economy expanded 2.3%, also in line with the preliminary figure.
The BOK last month projected GDP would grow 2.4% this year in a slight reduction of its previous projection after the economy contracted in the second quarter.
The latest full-year forecast is still well above the projection provided at the start of the year, before authorities realized the full strength of the export recovery. Robust external demand helped South Korea’s economy expand by 1.3% in the first quarter compared with the final three months of 2023, an outcome that was more than double the consensus estimate.
A global boom for artificial intelligence development has been a boon for South Korea, home to two of the world’s biggest memory-chip manufacturers, Samsung Electronics Co. and SK Hynix Inc. Manufacturing related to a wide variety of technology industries is a key driver of the nation’s economy.
While the headline growth rate was unrevised, the BOK tweaked its estimates for facility investment, exports and imports to show a stronger performance in its updated assessment of the second-quarter economy. Authorities trimmed readings for government and construction expenditures. That suggests external demand and its positive ripple effects on manufacturing were more pronounced than previously thought.
Whether global demand for chips and other South Korean exports will be sustained in the second half is open to question. Doubts about the outlook helped kindle a decline in stocks in the semiconductor sector earlier this week. Lingering credit risks in the construction industry and slower private consumption are additional concerns for policymakers.
The headwinds loom as the Federal Reserve moves toward a potential policy pivot later this month. The BOK is also expected to consider cutting its key interest rate either in October or November as its focus gradually shifts toward shoring up economic momentum after inflation cooled to its target of 2% in August.
“The tailwind in the tech cycle may sustain, but risks are building elsewhere,” Bank of America analysts Benson Wu and Ting Him Ho said in a note before the GDP revision. “As current tight financial conditions continued to weigh on domestic consumption, we believe the BOK will finally pivot in coming meetings, especially when considering the disinflation trend and the easier external financial conditions.”
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