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South Korea's Q2 GDP growth accelerates on-quarter as consumption, capex pick up

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South Korea's economy grew 0.7 percent in April-June over the previous quarter, the central bank estimated on Tuesday, accelerating modestly from the previous three-month period as domestic consumption and capex improved.

It follows 0.5 percent growth for the first quarter. It was in line with a median 0.7 percent gain on a seasonally adjusted basis tipped in a Reuters survey of 18 analysts.

It matched a 0.7 percent growth in the fourth quarter of last year on a sequential basis.

The economy expanded 3.2 percent in the June quarter from a year earlier, outperforming a median 2.9 percent forecast in the Reuters poll and 2.8 percent growth in the first quarter. It was the fastest annual growth since the third quarter of 2014.

Tuesday's data offered some hope as Asia's fourth-largest economy struggles to escape low growth. Exports have kept falling since January last year while domestic consumption has also shown signs of weakening.

"Growth at 0.7 percent comes as a relief but construction will probably slow from now on. GDP growth in annual terms is likely to ease to the 2-percent range in the third and fourth quarters," said Park Jung-woo, an economist at Korea Investment and Securities.

South Korea will submit a $9.7 billion supplementary budget to parliament later on Tuesday, which will focus on creating 68,000 new jobs to make up for severe job cuts as the struggling shipping and building industries are overhauled.

"The government's extra budget will only partially affect this year's growth and this may lead to more demand for another rate cut," said Park.

In a surprise move, the Bank of Korea cut interest rates to a record-low 1.25 percent in June, and a majority of market analysts see one more cut by year-end.

Capital investment notched a 2.9 percent gain after tumbling 7.4 percent in the first quarter, which was the fastest rise seen since a 3.5 percent rise in the fourth quarter of 2014. The gain was attributed to an increase in transport equipment investment.

The Bank of Korea and the government currently estimate this year's GDP growth at 2.7 percent and 2.8 percent, respectively.

Bank of Korea estimates showed private consumption rose by a seasonally adjusted 0.9 percent in the second quarter after slipping 0.2 percent in the January-March period, thanks to demand for semi-durable goods like clothing. It was still weaker than a 1.4 percent rise in the October-December period last year.

The data was released before markets opened.

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