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South Korea’s economy expanded at a much faster pace than expected in the fourth quarter, supporting optimism that a recovery may be under way for the Asian bellwether of global demand.

Gross domestic product increased 1.2% from the previous quarter, the fastest pace since the third quarter of 2017, a Bank of Korea statement showed Wednesday. Economists had forecast a 0.7% expansion.

Key Insights

  • South Korea is pinning its hopes on an export-turnaround as trade tensions thaw between the U.S. and China, its two biggest trading partners. The latest data was positive, with semiconductor shipments gaining in the first 20 days of January for the first time in more than a year.
  • BOK’s Governor Lee Ju-yeol also struck a more optimistic tone as the board put interest rates on hold last week. Lee said the economy would grow faster this year than in 2019. The BOK forecasts 2.3% growth this year.
  • An expansionary government budget is another key factor likely to bolster growth this year. The government says it will front-load its 2020 spending in the first half of the year to support a recovery in investment. A supplementary budget approved last August helped counter downside risks in the fourth quarter.
  • President Moon Jae-in pointed this week to the stock market’s recovery as evidence of rising economic optimism. Moon predicted exports will expand from February. The Kospi index has risen 3% so far in 2020.
  • Lower construction investment may remain a drag on growth this year. On top of higher property taxes and tighter lending regulations announced in December, Moon recently said he’s willing to take “endless” action to curb rising home prices.

What Bloomberg’s Economist Says

“Looking ahead, we forecast GDP growth of 2.3% in 2020, reflecting a gradual recovery in exports and investment. On the policy front, an expansionary fiscal stance will likely take the lead in supporting the economy. Our baseline expectation is for the Bank of Korea to stand pat in the year ahead.”

--Justin Jimenez, Bloomberg Economics

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  • From a year earlier, GDP increased 2.2% in the fourth quarter, according to Wednesday’s report.
  • Government spending increased 2.6% from the previous three months; private spending rose 0.7%.
  • Facilities investment rose 1.5% and construction investment rose 6.3% from the earlier period.
  • GDP exports in real terms fell 0.1%, while imports were unchanged.

(Adds detail on growth drivers.)

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, Jiyeun Lee, Jason Clenfield

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