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(LEAD) Q2 economic growth estimated at around 1 pct

16:18 July 21, 2019

(ATTN: RECASTS first 3 paras with updated info; ADDS more details)

SEOUL, July 21 (Yonhap) -- South Korea's economy is estimated to have grown 1 percent in the second quarter, shifting from a contraction of 0.4 percent the previous quarter, financial industry sources said Sunday.

The Bank of Korea is set to unveil its growth estimate for the April-June period this week. Earlier, the central bank had predicted that Asia's fourth-largest economy would expand 1.2 percent during the quarter that just ended.

But a drawn out trade dispute between the United States and China, combined with a sharp drop in semiconductor prices, has taken a toll on the economy.

South Korea's exports dipped for the seventh consecutive month in June amid the prolonged trade dispute between the world's two largest economies. Adding to this, prices of semiconductors, a key export item for South Korea, have remained weak.

Bank of Korea Gov. Lee Ju-yeol holds a press conference in Seoul on July 18, 2019, after the central bank cut the policy rate by 25 basis points to 1.5 percent in a surprise move aimed at supporting growth. (Yonhap)

In the face of its own trade feud with Japan, South Korea's economy is also increasingly facing headwinds.

The central bank unexpectedly cut the key rate by a quarter percentage point cut to 1.5 percent last week, while trimming its growth outlook for the year to 2.2 percent from its earlier 2.5 percent forecast.

But the BOK warned that economic uncertainty will further increase due to the flare-up of a trade tussle between the two neighbors.

"Without a breakthrough in the U.S.-China trade talks, a rebound in the chip making sector will be further delayed," said Yoon Chang-yong, an analyst at Shinhan Financial Investment Corp.

"It will not be easy to attain economic growth of over 2 percent," he said.

The BOK has signaled it would further cut the benchmark rate to prop up the economy. The government submitted a 6.7 trillion-won(US$5.69 billion) extra budget bill for parliamentary approval in early May, but it is still pending at the National Assembly.

The country's finance ministry also trimmed its growth outlook to a range of between 2.4 percent and 2.5 percent from a band of 2.5 percent and 2.6 percent. Market watchers said the government may further slash its growth estimate for the year in the face of growing uncertainties.

Major institutes have put out more grim outlooks for South Korea.

Global rating agency Standard & Poor's has sharply slashed its growth forecast for South Korea's economy this year to 2 percent, from 2.4 percent in April, due to rising uncertainty about the global trade outlook and weaker consumption.

S&P said high inventories, particularly in the electronics sector, and rising uncertainty about global trade will continue to weigh down production and private investment.


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