One of the most-followed belwethers for global growth just flashed another death-knell warning for the green-shoot-ers.
South Korea’s gross domestic product unexpectedly shrank in Q1, dropping 0.3% QoQ (against expectations of a 0.3% rise).
This is the biggest contraction in a decade as declining investment and exports take a toll on Asia’s fourth-largest economy.
South Korea is highly exposed to slowing in global growth and the technology sector, which have combined to crimp the nation’s GDP in recent quarters, and Band of Korea Governor Lee Ju-yeol blamed weakening exports, particularly of semiconductors, and slowing business investment for the growth downgrade.
As growth has slowed recently, the government unveiled a supplementary package of 6.7 trillion won ($5.9 billion) comes on top of a main budget that is already a record and a hefty increase from last year. However, the extra budget may push up GDP by 0.1 percentage points and create just 73,000 new jobs, according to the government.
It might still be “quite challenging for South Korea’s GDP growth to achieve the government’s 2.6-2.7 percent forecast,” said Krystal Tan, economist at Australia & New Zealand Banking Group in Singapore. “Unless a stronger-than-expected recovery in the export sector materializes in the coming months, a bigger extra budget would probably be needed to push growth into that band.”
Of course, none of this is a problem for semiconductor company’s stocks – which are at a record high, despite collapsing earnings expectations…