How Economists Are Reacting to South Korea's Unexpected GDP Contraction

(Bloomberg) -- Here is a selection of comments from economists following Bank of Korea’s report that South Korea’s first-quarter gross domestic product shrank the most in a decade.

Kong Dongrak, Daishin Securities in Seoul:

“We are considering bringing forward our BOK rate cut call, which currently forecasts the central bank to cut rates sometime in the fourth quarter. I assume many other economists, who have maintained a rate hold view, will probably change their call following today’s reading.”

“Yields of three-year bonds may drop to as low as 1.7 percent in the next month, while 10-year yields could dip to 1.85 percent.”

Park Chong-hoon, Standard Chartered Bank in Seoul:

“It was a surprise. The growth figures were extremely bad. In order to meet the BOK’s growth forecast of 2.3 percent for the first half, the economy should expand at least 1.5 percent in the second quarter, which looks daunting.”

“The latest figure shows that the business sentiment is clearly bad. Facilities investment equals business sentiment but this seems extremely squeezed; so that worries me. The latest growth figure will likely make people think the government may have become too complacent over economic issues.”

Rob Carnell, ING Bank in Singapore:

“The numbers were bad, worse than expected, and coupled with low inflation, ought to encourage the BOK to respond with easier policy rates.”

“At the heart of this is the global semiconductor slump, which is weighing on both exports and investment, but also feeding through into generally weak domestic demand and sentiment.”

“Government measures to provide offsetting stimulus look insufficient to totally offset these drags, and further weakness of both activity and inflation in the coming months and quarters look likely.”

Kim Doo-un, KB Securities in Seoul:

“As was expected the capital investment seemed very bad. It will only start improving from the latter half of the year. Looking at those figures, I may have to revise down my previous growth forecast of 2.5 percent for this year.”

“The latest reading shows the overall investment, including facilities and construction, is completely stalled and it will take some time to get these back on track.”

“Any sharp improvement in investment is unlikely at least until the second quarter of this year. But it may improve slightly in the second half, partly helped by lower base effect last year.”

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