Country Economic Forecasts > South Korea

GDP growth registered a relatively robust 0.7% q/q in Q3 2016, underpinned by strong domestic demand, in particular private investment, offsetting a negative contribution from net exports. The better than expected Q3 outturn has prompted an upgrade to our full-year GDP forecast for 2016, but fundamentally our outlook for Korea has not changed, and we expect overall growth to slow over the next 12 months.In particular, recent growth has been underpinned by a construction boom that is unlikely to be sustained going forward. The housing market is now showing signs of cooling. Meanwhile, the ongoing corporate restructuring of shipbuilding and other financially vulnerable sectors will constrain corporate profitability and weigh on non-construction investment growth. Private consumption has shown steady growth recently, but here too we expect growth to slow, undermined by rising inflation, weaker employment growth, and high levels of household leverage. Furthermore, sentiment is likely to deteriorate as the government is embroiled in a political scandal that will likely drag into next year and may bring down President Park Geun-Hye. However, the difficult background will mean that fiscal and monetary policy remains supportive of growth in the short term.