Korea: Economic activity contracts at sharpest rate since February 2020 in January
Latest reading: Economic activity declined 2.7% in month-on-month seasonally adjusted terms in January, which contrasted December’s 1.7% increase. January’s outturn marked the worst reading since February 2020. The services, industrial and construction all contracted in January. The early Lunar New year festival could have weighed on industrial and construction activity in the month, but the broad-based and pronounced nature of the economic downturn suggests underlying economic weakness.
On an annual basis, economic activity fell 1.9% in January (December: +1.1% yoy), the worst result since January 2021. Meanwhile, annual average economic activity growth fell to 0.9% in January (December: +1.4%), pointing to a worsening trend.
Panelist insight: ING’s Min Joo Kang said:
“Given recent data, we revised our quarterly GDP forecast for 1Q25 from 0.3% quarter on quarter, seasonally adjusted, to 0.2%. The supplementary budget is coming out slower than expected, while its scale is less than we expected. Thus, the first quarter GDP is likely to rise a mere 0.2% thanks largely to net exports.”
Nomura analysts said:
“Economic activity data reflected broad-based weakness across consumption and investment, which raises the risk of an economic contraction in Q1. […] We lower our Q1 GDP growth forecast to 0.1% q-o-q, sa (from 0.6%) and our 2025 GDP growth forecast to 1.5% y-o-y (from 1.7%).”