Korea GDP set to climb to 0.9% in 3Q

Recovery is expected following the ferry disaster.

Korea's upcoming release of its third quarter GDP data should confirm that the economy has recovered from the weak 2Q caused by the ferry disaster.

According to a research note from DBS, on the quarter-on-quarter basis, GDP growth is expected to rise to 0.9% in the Jul-Sep period from 0.5% in Apr-Jun.

Meanwhile, the annualized growth rate should have risen to close to 4%, a notable rebound compared to 2.0% in the previous quarter.

The comprehensive easing of fiscal, monetary and credit policies by the government and the central bank over the last few months has effectively boosted consumer spending.

Here's more from DBS:

Although the consumer sentiment index improved only marginally in 3Q, the hard data including retail sales, household loans and property transactions have showed a very strong rebound on the broad basis.

Private consumption expenditures should have played the key role in driving GDP growth in 3Q.

On the other hand, export growth appeared to be weak in 3Q and investment growth might have contracted.

The monthly figures for manufacturing activities have deteriorated significantly, due to the interruption of labor strikes in the automobile sector.

The leading indicators including machine orders and construction orders have still improved, which points to a resilient recovery in investment as soon as 4Q.

The uncertainties center on the export outlook. Global growth concerns have increased of late, in light of the recession risks in Europe and Japan and the possibility of a weaker-than-expected recovery in the US.

A slowdown in exports demand could counteract the efforts made by the Korean authorities to revive domestic demand. External risks need to be closely monitored.