• South Korea’s economic growth unexpectedly increased in the second quarter, bolstering the case for additional central bank interest rate increases.
• “Since August of last year, the BOK has increased the policy interest rate by a total of 1.75 percentage points, from a record-low 0.5 percent.
• Economists anticipate that rates will reach 2.75 percent by the end of the year.

Due to strong consumer spending and the relaxation of COVID-19 restrictions, South Korea’s economic growth unexpectedly increased in the second quarter, bolstering the case for additional central bank interest rate increases.

The Bank of Korea reported on Tuesday that the gross domestic product for the months of April and June increased by 0.7 percent quarter over quarter, exceeding the Reuters survey’s forecast of 0.4 percent growth and outpacing the first quarter’s growth of 0.6 percent. View More

According to economists, the encouraging figures permitted the central bank to continue tightening policy in the upcoming months after this month’s historic 50 basis-point rate hike.

According to Chun Kyu-yeon, economist at Hana Financial Investment, “the economy will definitely slow down due to protracted inflation and decreasing exports, but today’s excellent numbers are a good boost for the central bank considering inflation as the key danger for now.”

Since August of last year, the BOK has increased the policy interest rate by a total of 1.75 percentage points, from a record-low 0.5 percent. Economists anticipate that rates will reach 2.75 percent by the end of the year. On August 25, the bank holds its subsequent policy meeting.

Following a 0.5 percent fall in the first quarter, private consumption increased 3.0 percent, the highest gain in a year, as the government in April virtually eliminated COVID-19 social-distancing limitations.

Despite the BOK’s aggressive run of interest rate increases since August of last year, there has been solid consumption.

After the parliament approved a 62 trillion won ($47.33 billion) supplementary budget weeks after President Yoon Suk-yeol assumed office in early May, the economy also benefited from an increase in government spending. View More

However, a slowing Chinese economy, the effects of the Ukraine conflict, and a global wave of tighter monetary policy to combat inflation all contributed to a decline in exports and corporate spending on production facilities.

The steepest drop in exports in two years occurred between April and June, when compared to the prior quarter, and was 3.1 percent. After declining by 3.9 percent from January to March, capital investment fell for a fourth consecutive quarter by 1.0 percent.

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