Data released on Monday showed that the South Korean economy started off 2016 on a weak footing. South Korea's GDP growth slowed in the first quarter to 0.4% q/q on a seasonally adjusted basis.
After two quarters of above-trend growth in a period of weak external demand, some pullback was expected. But of concern was the sharp contraction in the private consumption which fell 0.3% q/q sa, the sharpest drop in over two years – even more than the MERS-induced fall in 2Q15.
Private consumption slumped despite the government's efforts to give consumption a boost – including a temporary consumption tax cut and a supplementary budget targeted at industries impacted by MERS.
“We forecast growth of 2.2% in 2016 (BoK: 2.8%, MoSF: 3.1%) and expect one 25bp rate cut from the BoK in 2Q.” said HSBC in a report.
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