South Korea's Economy Shrinks, Sparks Interest Rate Cut Debate

South Korea's economy saw its sharpest contraction since 2022 in the second quarter, driven by declining consumer spending. This downturn is fueling expectations of imminent interest rate cuts by the Bank of Korea. Analysts are divided on the timing, with some expecting cuts as early as next month.

South Korea's economy unexpectedly shrank in the second quarter, marking the sharpest contraction since 2022, as slumping consumer spending undermined an export boom. This reinforces expectations of an imminent interest rate cut.

Gross domestic product (GDP) for April-June fell 0.2% from a quarter earlier, missing analysts' predicted 0.1% gain. This drop increases pressure on the BOK to cut rates, especially with easing consumer price pressures.

Capital Economics highlighted worsening domestic demand, advocating for rate cuts by October, possibly sooner. Despite the downturn, some analysts argue the BOK will delay cuts, awaiting U.S. Federal Reserve actions.