South Korea's Economy Unexpectedly Contracts As Exports Crash Most In 33 Years

We saw this coming.  Looking at Korea’s economic policy, we wonder if policy makers understand there should be a fundamental shift in Korea’s export-driven economic model, as I mentioned many times.

From Zero Hedge:

For only the 4th time since 1999 (and for the first time since Lehman), South Korea's economy unexpectedly shrank in Q4 (contracting 0.4% QoQ against expectations of 0.1% expansion), busting the global-synchronized-growth narrative.

Government spending rose 0.5% QoQ, and while private consumption rose 1.09% QoQ, construction investment tumbled 3.8% QoQ

Exports were the biggest driver - plunging 5.4% QoQ - the biggest drop since 1985...

As Goldman notes, Korea's 2017 Q4 GDP contracted 0.2% quarter on quarter (seasonally adjusted), slowing sharply from 1.5% in Q3 and falling for the first time in nine years. The figure was well below consensus and as well as our expectations. Main points:

1. Korea's 2017 Q4 GDP contracted 0.2% quarter on quarter (seasonally adjusted), slowing sharply from a high base of 1.5% in Q3 and recording the first sequential decline in nine years.

2. Domestic demand's total contribution to sequential GDP growth moderated to 0.6pp, from 0.8pp in the previous quarter.  Facilities investment fell 0.6% qoq sa, and the contraction was more pronounced in construction activities (-3.8% qoq sa).

3. Net exports' contribution to sequential growth fell back to -0.8pp. Exports recorded a sequential contraction of -5.4% qoq sa, but slowing from a sharp growth of 6.1% in Q3. Imports also declined 4.1% due mostly to lower machinery imports according to the Bank of Korea press release.

4. By industry, manufacturing contracted 2.0% qoq sa, the weakest print since Q1 2009. While the detailed breakdown by sectors is not yet available, the BOK press release highlights that the weakness was concentrated in transport equipment production including autos. In contrast, services continued positive growth at 0.4%, although moderating from 1.1% in the previous quarter.

5. For the full year of 2017, Korea's real GDP grew 3.1%, up from 2.8% growth during the previous two years (2015-2016). 

 So Q4 2017 saw the worst economic environment since Q4 2008...

But stocks were soaring...

And PMIs said "everything was awesome"...

Perhaps most worrisome is that South Korea is often termed 'the canary in the world trade coalmine' and this downside surprise will do nothing to confirm the 'globally synchronized growth' narrative.

With The Won soaring to four-year highs...

How long before South Korea rejoins the currency wars?

https://www.zerohedge.com/news/2018-01-24/global-synchronized-recovery-narrative-stunned-south-korean-exports-collapse