Korea’s Q1 2015 GDP growth is likely to be rather disappointing when we consider the normalization of government spending after the “fiscal cliff” in the previous quarter. The BoK’s de facto flash estimate on Q1 GDP in its latest macroeconomic forecast at the April MPC meeting was 0.8% qoq, which suggests pretty weak momentum in private sector activity when an instant pickup is assumed in government investment after the 11.5% dip in Q4 2014. Monthly activity data in January and February and the BoK’s GDP forecasts by sectors indicate a sizeable pickup in construction investment, a gradual recovery in consumption and relatively weak momentum in the export and manufacturing sector. As the BoK said, disappointing growth in Q1 and the subsequent downward revision in GDP forecasts were already reflected in the policy rate cut in March. “The official release of Q1 GDP data is unlikely to have any further impact on the market as long as it does not deviate from the BoK’s flash estimate. Key activity data (IP, retail sales, etc) in March will be the key in determining the timing of the next policy rate cut”, says Societe Generale.
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