Korea's second quarter growth feared to be weaker than expected

Manufacturing numbers have been nosediving.

According to DBS, the manufacturing data for April/May came in weaker than expected. Industrial production fell unexpectedly by -1.2% (MoM sa) in April.

Exports plunged by -10.9% (YoY) in May. Meanwhile, the PMI index stayed below the neutral level for the third successive month in May, at 47.8. All these suggest that manufacturing activity may have moved into a contraction mode in 2Q.

Here's more from DBS:

The only positive spot was consumer spending. Retail sales increased 1.6% (MoM sa) in April, well above the long-term growth average of 0.3%. Output in the services industry, which is mainly driven by domestic consumption demand, also registered an above-trend growth of 0.5%.

It looks very likely that private consumption growth has quickened in 2Q, reaching 3.0%. In a nutshell, domestic demand has maintained a steady recovery trend in 2Q on the back of supportive policies, but exports have deteriorated notably amid an unfavorable global environment.

With the weakness in exports and manufacturing offsetting the gains in consumption and services, GDP growth should have remained below the potential rate in 2Q, missing the BOK’s estimate of 4%.

Chances are increasing that the BOK will cut rates by one more 25bps within this year, probably as soon as this month.

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