(Bloomberg) —South Kora’s economic growth slowed in the second quarter as expansion in construction investment eased and export volumes fell from the previous three months. Economists said the slowdown is mostly due to a base effect from a solid first-quarter performance and that it shouldn’t be seen as a negative sign for the outlook.

Key Points

Gross domestic product expanded 0.6 percent in the second quarter from the previous three months, when it increased 1.1 percent, the Bank of Korea said on Thursday. NOTE: The 1.1 percent expansion during January-March was the best since the third quarter of 2015. The median estimate of economists surveyed by Bloomberg was for 0.6 percent expansion. From a year earlier, the economy grew 2.7 percent, matching the estimate by economists.

Big Picture

South Korea’s economy received a new boost from the parliament’s approval of an extra budget this month, which the government estimates would support the growth rate by 0.2 percentage points, lifting expansion this year 3 percent. While exports have continued to rise by double-digits, consumption has been a weak point. That weakness in spending may change, as private consumption expanded 0.9 percent in the second quarter from the previous three months, the biggest gain since 2015. Consumer sentiment has been soaring with optimism on President Moon Jae-in’s job-promoting policies.

Economist Takeaways

Gains in private consumption and facilities investment were better than I had expected,  said Stephen Lee, an economist for Meritz Securities in Seoul. Exports volume fell from the previous quarter, but you can say the recovery momentum has ended, according to Lee. With the government’s extra budget to be implemented from the third quarter, growth this year will be at about 2.9 percent, said Lee.

Details

Growth in the second quarter was led by private consumption and facilities investment, Chung Kyu-il, director general at the BOK, said in a briefing. Demand for air conditioners and air purifiers increased due to hot weather and air pollution, Chung said. New smartphone releases at end-August, and demand for home appliances as people move in to newly built apartments, will be positive factors for consumption in the second half of the year, according to Chung. Government spending was up 1.1 percent from the previous three months, according to BOK statement. Construction investment increased 1 percent compared with the 6.8 percent gain in the first quarter. Exports as measured by volume fell 3 percent from the first quarter. Facilities investment gained 5.1 percent from previous quarter.